Energy Efficient Mortgages
An energy-efficient home with proper insulation, high efficiency
heating and cooling systems, and energy-efficient windows can lower
those utility bills by 10 to 50 percent. The federal Government has
established a pilot program with Fannie Mae to help establish a set of
standards and to help owners to upgrade to more energy efficient homes.
What Is It?
Very simply, an EEM is a mortgage in the normal sense except the cost
of installing energy saving improvements can be included in the
mortgage financed (or refinanced) of HUD, FHA, VA, or Fannie Mae
mortgages. Today some utilities have teamed up with other conventional
mortgage companies to offer EEM mortgages. Basically, if you can prove
that your improvements can save energy you can generally finance from
$3,000 to $8,000 worth of energy improvements. But only if a HERS
energy rater ( there is a fee involved in the inspection – find out how
it is handled in your state and from program to program) certifies that
the average monthly energy savings will be greater than the added
financing costs of borrowing the $3,000 to $8,000.
How It Works
A homeowner or buyer would check to determine what programs were
available. The programs vary from state to state and there are now
quite a few energy efficient mortgage programs available. Talk to some
of the companies and government agencies offering these programs in
your state.
The HERS Rating
The inspector will inspect the insulation, heating and cooling systems, windows
and look for air leakage. After the inspection, the energy rater will
probably give you a report that includes the home's energy rating and
an estimate of annual energy use and costs, recommended improvements
and associated costs, and potential annual savings. This certification
is a key document in obtaining funding for improvements.
To help qualify for most energy-efficient financing
The report usually must show that the home is energy-efficient or that
recommended improvements are cost-effective and will save you more
money than you'd be borrowing to install them. While calculating
whether a borrower qualifies for a mortgage, a lender can recognize
these savings and add the cost of the improvements into the mortgage,
up to $8000. Or, if the home is already energy-efficient, the lender
can stretch the debt-to-income qualifying ratio, helping homeowners
qualify. The cost of a home energy rating and how it can be paid as
well as the availability of certified energy raters, can vary from
state to state and from one energy-efficient financing program to
another.
A certificate is issued by the energy rating provider. If all the
documentation is in place the HERS rated property may be eligible for
an Energy Efficient Mortgage.
The HERS Certificate
According to the FANNIE MAE web site, the certification required should include the following:
- The existing rating
- Existing energy features
- Recommended improvements
- An estimate of the utility savings
- The present value of the estimated savings
- The mortgage rate used for the present value calculation
- The estimated ratings after improvements are considered.
Advantages
- The HERS Certificate can increase home buyer's qualifying income.
- The borrower or owner improvement may qualify for a 2% “stretch” in debt-to-income and housing expense-to-income ratios.
- Energy improvements can be financed
- The costs of the upgrade can be rolled into the mortgage.
EEM Programs
- Fannie Mae: There are a variety of programs available and more information can be found at: www.fanniemae.com
- FHA:
allows borrowers to finance the cost of adding energy-efficient
improvements to new or existing homes as part of their FHA-insured
purchase or refinancing mortgage. www.hud.gov/
- The U.S.
Department of Veterans Affairs (VA): Energy Efficient Mortgages (EEM)
can be used to purchase or refinance a home along with the cost of
making energy-efficient improvements . www.va.gov/
- ENERGY STAR®
Mortgage: U.S. Department of Energy and the U.S. Environmental
Protection Agency encourage lenders to provide EEMs for certified
ENERGY STAR® homes.
- Utilities:
Some utilities offer loans and other programs to bring homes up to
energy efficient standards. See the directory for state web sites and
utilities on this site.
- Edison
Electric Institute: Both Fannie Mae and the Edison Electric Institute
program have partnered with utilities to put programs in place. Find
the Edison Electric Institute at www.eei.org/
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