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Energy Efficient Mortgage for a Greener House

Energy Efficient Mortgage Homeowners Guide

Energy Efficient Mortgage Homeowners can take advantage of green loans to either finance energy efficiency improvements to existing homes, or to increase their home buying power with the purchase of a new energy efficient home.     There are Two Types of Energy Mortgages:
  • Energy Improvement Mortgage – An EIM is meant to help homeowners plan on making energy efficiency improvements to their existing houses.  This type of mortgage finances the energy upgrades by using the monthly energy saving. The costs for these improvements are accounted for in the mortgage so borrowers will not have to make a larger down payment
  • Energy Efficient Mortgage – An EEM is used towards purchasing a new home that is already deemed an energy efficient house; it uses the energy savings from to increase the home buying power of consumers while capitalizing the energy savings in the appraisal. In order to qualify for an EEM homebuyers must first obtain an energy rating on the home.
Both EEMs and EIMs are sponsored by federally insured mortgage programs (FHA and VA). Advantages of an Energy Eficcient Mortgage An Energy Efficient Mortgage (EEM) is a mortgage that lets you borrow extra money to pay for energy efficient upgrades to your current home by rolling a home's energy efficiency in the mortgage itself. The mortgage lender will calculates how much you will be able to save on your utility bills after the upgrades are performed, and the underwriter will use that dollar amount to reduce your debt-to-income qualifying ratios. This way you can finance cost-effective, energy-saving measures that will lead to a more environmentally friendly living space. Getting an EEM allows you to significantly lower the utility costs by using less resources for heating and cooling. Some of the upgrades you can do with an EEM are:
  • Solar heating and cooling systems
  • Geothermal heating,
  • Tank-less water heaters or newer heating,
  • Ventilation and air-conditioning systems
  • Clock thermostats
  • Thermal windows and doors
  • New additional insulation for walls, ceilings, attics, floors and water heaters
  • Furnace efficiency modifications (but not an entirely new furnace)
  • Vapor barriers
  • Caulking and weather stripping
There are also a few upgrades that cannot be done under an EEM. A few examples are:
  • A/C unit
  • Vinyl siding
  • New roof or shingles
What do I need to get an EEM? The first step is obtaining a report on the property's energy efficiency. A trained examiner will make the assessment and will evaluate it using the Home Energy Rating System index. The HERS scale will rate your house  from 0 points to 150 points, the lower the score, the more energy efficient the home. Once this rating is determined, the examiner will also make recommendations on how you can improve your property. The inspector also has to mention in the report the projected monthly savings. Both EEMs and EIMs are sponsored by federally insured mortgage programs (FHA and VA). FHA Energy Efficient Mortgages The mortgage loan amount for an FHA EEM can be increased by the cost of effective energy improvements. The maximum amount for an EEM is either 5 percent of the property's value (up to $8000) or $4,000, whichever is greater. You can check the FHA loan limits here. VA Energy Efficient Mortgages The Veteran's Administration (VA) EEM is available to qualified military personnel, reservists and veterans for energy improvements. The mortgage lender will request the borrower to document the cost of improvements through bids, contracts and other documents. No matter of the appraised value of your home, the maximum borrowing amount for home improvements is $6,000. Conventional EEMs There are also conventional Energy Efficient Mortgages that are not insured by a federal agency. Private lenders sell mortgages to Fannie Mae and Freddie Mac; which in turn allows homebuyers to borrow 10 percent of the appraised value of the completed property for improvements documented by a Home Energy Rating. As you can see an Energy Efficient Mortgage is a cost-effective way to lower your energy consumption. Making your house more energy efficient has several benefits besides saving you money on utility bills. Energy efficient homes have lower maintenance costs and generally last longer. An upgraded house can even make a change in the way you live your life in regard to the environment.
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