These mortgages are a way to fund energy efficient improvements using your mortgage.
But 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
He 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.
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 or
an Energy Efficient Improvement 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/
