You’ve found your dream home, but the furnace is older than you are. There is no need to wait to make your home energy-efficient. With an Energy Efficient Mortgage (EEM), homeowners can roll the cost of energy efficiency improvements right into the mortgage.
Because increasing energy efficiency lowers monthly expenses, homeowners with EEMs can qualify for larger mortgage amounts. Best of all, an Energy Efficient Mortgage can be used to refinance and increase the efficiency of your current home.
There are three basic types of Energy Efficient Mortgages:
Conventional
With a conventional Energy Efficient Mortgage, the homeowner can borrow up to 15% of the appraised value of the home to improve its efficiency. Conventional EEMs are financed by Fannie Mae and Freddie Mac.
Federal Housing Administration
The Federal Housing Administration insures mortgages to make homeownership accessible to more low- and moderate-income households. With an FHA EEM, the homeowner can make between $4,000 and $8,000 worth of energy efficiency improvements to the property.
Veterans Administration
Veterans eligible for VA home loans can spend between $3,000 to $6,000 on energy efficiency measures.
According to Ecobroker, an Energy Efficient Mortgage will cost homeowners $30-$50 per month in additional principal and interest, but this is far exceeded by average energy savings of $75-$100 per month. Lenders like this because borrowers with improved cash flow are less likely to default.
In order to be eligible for an EEM, homeowners need to complete a Home Energy Rating (HER), which rates a home’s efficiency on a 100-point scale and pinpoints possible improvements.
One more tip—check to see if your state has an energy efficient mortgage program of its own.
