Updated December 2014
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Improving your furnace can save you money

Most people are locked in to their furnace type -- you buy a home, it has a gas, oil, or electric-powered furnace, so that's what you live with. Replacing a furnace is never an inexpensive proposition, and completely retrofitting a system -- for example, replacing forced air with hydronic (hot water) heat can be prohibitively expensive.

The good news is that replacing an older furnace with a newer, more efficient furnace can result in significant cost savings -- as well as being a positive step for the environment. The federal government is keenly interested in the effect on the environment of home heating systems and, as a result, as of May 1, 2013, federal regulations for non-weatherized furnaces of all types went into effect that require a minimum annual fuel utilization efficiency (AFUE) rating of 80 percent for gas furnaces, 83 percent for oil furnaces. On Jan. 1, 2015, additional regulations go into effect for weatherized furnaces requiring a minimum AFUE of 81 percent for gas, and 78 percent for oil. However, in 30 northern states, the standards for gas furnaces are more stringent - requiring a minimum AFUE of 90 percent. Weatherized furnaces are generally installed outdoors and non-weatherized furnaces are installed indoors.

Replacing an ailing or old furnace might also get you a tax credit. Although federal tax credits for most furnaces have expired, they are still available for geothermal heat pumps, which use heat from the ground. In addition, tax credits may be available from your state government, while your utility company may offer rebates for upgrading to more-efficient heating equipment. For a complete, state-by-state list of credits and rebates, visit the Database of State Incentives for Renewables & Efficiency (DSIRE) website.

Furnaces are generally powered by gas, oil or, occasionally, electricity. In colder climates, a more powerful, whole house system will be a necessity. More moderate climates may allow you to concentrate more on zone-type heating systems -- such as heat pumps with space heaters as a supplemental heating source; check out our report on space heaters for some suggestions.

How to choose a furnace

Unless you are a near professional-level do-it-yourselfer, experts say you must work with a reliable contractor and let that person's expertise guide you in choosing a furnace. A skilled heating, ventilation and air conditioning (HVAC) contractor will evaluate your home's energy needs and help you choose a furnace that is the right size and efficiency for you, based on a number of factors.

With few exceptions, furnaces and installation are sold as package deals along with the installation. Any contractor you work with should offer you a choice of furnace models with different efficiency ratings and should provide an estimate of annual operating costs for each one. Most contractors specialize in working with certain brands of furnaces, and some shops work with only one particular brand. This can be an advantage, because it means the contractor has most likely received specialized training from the manufacturer. However, it means that your furnace choices will be limited to that one brand. If you get an estimate from a contractor who deals only in one brand, get estimates from other contractors as well, making sure the furnaces they recommend are equivalent in size and efficiency.

Another tip from experts is to steer clear of companies that offer to give you an estimate over the phone. A reliable estimate must be based on a thorough survey of your home. The contractor should consider such factors as the size of the house, insulation levels, number and type of windows and the climate in your area. He or she should inspect your ductwork (if any) for air leaks and insulation level and measure airflow levels. The contractor should also ask you about any problems you have had with your existing heating system. Based on all this information, the contractor can perform a heat-load calculation to determine the proper size of your new furnace.

A contractor should never base this decision on the size of your existing furnace. Many homes have furnaces that are too large, partly because sizing methods have improved and partly because buildings have become more energy efficient. A furnace that is too large will not only cost more to install and operate, but it may not heat your home as evenly as one that is properly sized. A good contractor should evaluate your entire heating system and make appropriate suggestions for improving the overall energy efficiency of your home. This may allow you to purchase a smaller furnace and save money.

Contact several contractors and get an estimate in writing from each one. Most sources recommend getting at least three estimates. If you already know a reputable HVAC contractor, start your search with that person. Focus on local companies, and look for contractors who are licensed and insured.

The written estimate you get from each contractor should spell out all the details about the installation. It should describe the equipment to be installed, the work to be done, the costs for materials and labor and the payment schedule. It should also describe the equipment and installation warranties and provide a firm date for completion of the project. Make sure bids include all costs associated with the project, including permit fees (if required). Compare all your estimates and make sure that they cover the same work and the same type of equipment.

It may be tempting to go with the contractor who offers you the lowest estimate, but experts warn that price is not the most important consideration. For example, very low bids may not include routine services and customary warranties. If one contractor's bid is dramatically different from the others, don't hesitate to ask why. It's possible that this contractor has noticed something that others missed -- or vice versa.

How we evaluated furnaces

No publications or web sites conduct comparative reviews of furnaces or comprehensively rate individual models, and it's easy to understand why. A tester would have to install furnaces in identical homes to compare them. How well a furnace functions depends on the installation of the whole system, including ductwork and venting. Factors such as climate, home size, insulation, window condition and usage will also affect performance. Even evaluating the long-term reliability of a particular model is problematic because furnaces are made to last 15 to 20 years, and technology can change a lot over such a long period.

However, there are a number of helpful sources in detailing the types of furnaces available, new furnace technology, and how to choose the right furnace for you home, as well as discussions of whether or not a new furnace will be cost-effective. The U.S. Department of Energy and the American Council for an Energy-Efficient Economy (ACEEE) have a number of helpful resources. ConsumerReports.org offers a free furnace buying guide, although it covers only gas furnaces. In addition, we found sites directed at do-it-yourselfers and home improvement topics, such as BobVila.com and ThisOldHouse.com to be very helpful.

Elsewhere in this report:

Furnace Efficiency: A discussion of how furnace efficiency affects your wallet and the environment. Multi-stage verses single stage systems are explained.

Gas and Oil Furnaces: The two main fuel sources for furnaces are gas and oil. Editors explain the various merits of each type of fuel, and how the energy efficiency of any type of furnace be improved.

Boilers and Heat Pumps: Boilers and heat pumps provide heat differently than forced air furnaces and are growing in popularity. Radiant floor heating is also discussed.

Furnace Brands: Some furnace brands have better repair histories than others. Find out which company comes out on top. Furnace features within brands are also detailed.

Buying Guide: Not sure if you should upgrade your furnace? We discuss what factors to consider to help you decide, as well as next steps in purchasing a furnace.

Our Sources: These are the expert and user sources we consulted to give the most comprehensive overview of all types of home heating systems. They are listed in order from most helpful to least.

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