Energy Efficient Mortgages are available on most homes. Factors such as location, home price, or which utility company services the area do not limit opportunities to obtain one of these cost-saving loans.
What Are Energy Efficient Mortgages?
Whether buying, selling, refinancing, or even remodeling a home, you can potentially save money by using an Energy Efficient Mortgage, also known as an EEM. An EEM presents the borrower with additional benefits when the home is deemed energy efficient. If the home you are considering is not energy efficient then energy-saving improvements can be made to qualify for an EEM. These mortgages can be completed on FHA, VA, and conventional loans, and also can be applied to Portfolio and Jumbo Loans. The following types of property qualify:
- Older homes that qualify for energy efficient upgrades
- New homes that do not need energy efficient upgrades
- Old homes that do not need upgrades
- New construction
EEM Benefits for Buyers
Buyers can purchase bigger homes in better locations if the home is energy efficient. Energy Efficient Mortgages give the buyer more borrowing power. At the outset it may cost a little more, but in the long run the home owner saves money each month in energy bills. An energy efficient home increases the resale value, which is a long term benefit realized when the time comes to sell your home.
If you want to make energy-efficient improvements - but can't afford them along with the purchase of a new home - costs for the upgrades can be paid for through your mortgage. Ask your lender about increasing the amount of your loan to include the improvements. This may cause the amount of your payments to rise slightly, but the amount you save in utility bills in each month may offset this increase.
Home Energy Rating Systems
Home Energy Rating Systems is a program instituted to evaluate a home's energy efficiency. A qualified Energy Rater will evaluate your home and generate a report. This service costs between $100 and $300. Sometimes this expense is financed into the mortgage amount. Otherwise it can be paid for by the buyer, seller, lender, or real estate agent. If you decide to purchase a Home Energy Rating Systems report you should schedule it early in the loan process to avoid a delay in closing.
The following items are taken into consideration when compiling this report:
- Appliance efficiencies
- Window types
- Local climate
- Utility rates
This report not only rates the home and figures energy costs but also includes:
- Your home's overall rating score
- Recommendations for upgrades
- Estimated costs, yearly savings and useful life of the energy-efficient upgrades
- New rating based on completion of recommended upgrades
- Estimated comparison of energy costs before and after upgrades are completed
Scores rate from between 1 and 100. The higher the score, the more efficient the home is considered to be. These scores are based on "cost-effective" upgrades, which means improvements that will save more money than the initial cost to make the upgrade.
Benefits for Sellers
Energy efficient upgrades don't just benefit buyers. If you are ready to sell your home and have made such improvements your home may be more attractive to buyers than a less-efficient property. Because of this your home has the potential to:
- Sell more quickly
- Be affordable to more potential buyers
- Be more desirable in a competitive market
Benefits When Refinancing
You don't even have to move to get the benefits offered by Energy Efficient Mortgages. All you have to do is make the energy-efficient upgrades that will save you money in the long term and refinance your mortgage. This not only saves money on your utility bills, but may increase the resale value of your home for when you do decide to sell.
FHA Mortgage Energy Efficient Loans
Energy Efficient FHA mortgage loans cover improvements for new and existing homes. These mortgages are available in all 50 states. The FHA 203(k) program allows buyers and investors to attain one loan to finance the purchase of the property along with the money needed to complete the energy-efficient upgrades to be done after the loan closes.
VA Upgrade Loans
VA EEMs are obtained by qualified military personnel, reservists and veterans. These VA loans include:
- Up to $3,000 in upgrades financed solely on documented costs
- Up to $6,000 in upgrades financed if improvements are considered cost-effective
Fannie Mae EEMs
Fannie Mae secondary market guidelines allow approved lenders to increase the debt-to-income ratio requirements by 2 per cent for EEMs. This adjusted ratio aids buyers who have reached their income ratio limit to borrow more money.
Freddie Mac EEMs
Freddie Mac permits lenders to forecast utility savings and to use these amounts as a compensating factor.
Save More, Pay Less
EEMs can save you more than you initially pay to make the improvements, plus pay off with a higher resale home value when it comes time to sell. Benefits gained will differ from house to house, so be sure to discuss EEM options with your lender.