US Government: Energy Efficient Mortgages

If you are looking for a way to finance projects that will increase your home’s energy efficiency, you might want to take advantage of an Energy Efficient Mortgage (EEM). EEMs are designed to help finance a variety of energy efficiency measures, including renewable energy technologies, insulation, new windows and other improvements, for a new or existing home.

The way an EEM works is by calculating the potential savings and added home value from the energy-efficiency improvements and adding that amount to the mortgage. This helps to finance the improvements, and in turn, the savings on utility bills allows homeowners to make a larger monthly mortgage payment. However, EEM’s do not have an increased down payment. To learn more, visit the ENERGY STAR site.

In order to qualify for an EEM, a qualified professional will need to perform a Home Energy Rating, which measures the increased energy efficiency (savings on your utility bills) and increased home value you will gain through improvements made on your home.

Although private lenders provide the loans, most of the loans are insured through Federal Housing Authority (FHA) or Veterans Affairs (VA) programs. This allows borrowers who might otherwise be denied loans to pursue improvements, and it secures lenders against loan default.

There are three types of EEMs:

Federal Housing Authority Energy Efficient Mortgages
The FHA allows you to add up to 100 percent of the cost of energy-efficiency improvements to an existing mortgage loan with certain restrictions. FHA mortgage limits vary by county, state and the number of units in a dwelling. See the FHA website to find the FHA limit for your county. The loan may not be greater than the projected savings of the improvements.

The maximum portion of an EEM allowed for energy improvements is 5 percent of one of the following (whichever is lowest):

• The value of the property
• 115 percent of the median area price of a single-family dwelling
• 150 percent of the Freddie Mac conforming loan limit

Department of Veterans Affairs Energy Efficient Mortgages
The VA insures EEMs that are either added to a new VA loan or used to refinance an already existing VA loan. This mortgage is available to qualified military personnel, reservists and veterans.

By including contractor bids in the application, you may borrow up to $3,000. If you include documents showing that the utility bill savings due to the improvements will be greater than the mortgage payments, you may qualify for as much as $6,000.

Applicants should secure a certificate of eligibility from their local lending office and submit it to a VA-approved private lender. If the loan is approved, the VA guarantees the loan when it is closed. For more information, call (800) 827-1000.

Conventional EEMs
Conventional mortgages are not backed by a federal agency. Private lenders sell loans to Fannie Mae and Freddie Mac, which in turn allows homebuyers to borrow up to 15 percent of an existing home’s appraised value for improvements documented by a Home Energy Rating.

Both Fannie Mae and Freddie Mac take into account the value and savings of energy-efficient improvements, which gives borrowers who might otherwise be disqualified by their incomes to take advantage of the program.

Also, Fannie Mae lends up to 5 percent for ENERGY STAR new homes. Borrowers should apply directly to a private lender.

How to take advantage of these Energy Efficient Mortgages:

1. Contact your lender to determine if you qualify for one of the three Energy Efficient Mortgages.
2. Have a qualified professional perform a Home Energy Rating on your home to help you maximize your borrowing potential.
3. Let EnergySavvy connect you with quality contractors who will complete the energy-improvement projects you have in mind.
4. Enjoy knowing that you have gotten the most out of your mortgage and the improvements will be paying for themselves.