The Resurgence of the Energy Efficent Mortgage

By Dave Porter
 

Just when you think energy efficient mortgages and tie-dye tee shirts
are a thing of the past—in a flash—they’re back! But you don’t have to
wear love beads to take advantage of the Energy Efficient Mortgage
(EEM) and Energy Improvement Mortgage (EIM) programs.These mortgages aren’t just trendy fads any more.
 
So what’s the difference? EEM’s are used for homes that already meet a higher energy standard. This may be a new energy efficient home that has been built to Energy Star or National Association of Home Builders (NAHB) Green Standard or United States Green Building Code (USGBC)’s LEED (Leadership in Energy and Environmental Design) or it may simply be a very efficiently constructed home.EIM’s, on the other hand, are available for homes needing energy improvements. The costs of these improvements can be added to the mortgage. Although the monthly mortgage costs increase, the overall cost to operate the home declines due to the lower utility costs now that the home has been upgraded with energy improvements.
 
So what are the typical improvements? The usual suspects include: insulation, new windows, new heating and cooling systems, energy efficient lighting and appliances, to name a few (sorry, no hot tubs or wet bars!). These improvements are financed and added to the loan. It’s not a second loan at a different interest rate; these costs are become part of the first mortgage. The buyer gets a home with lower operating costs and the world wins with a lower use of our precious resources the “normalization” of lending practices which require crazy conditions like verified income, down payment and reasonable credit the energy efficient option creates more leverage.
To qualify for the stretch, the home needs to be tested through a process called a HERSs or Home Energy Rating System. The resulting report shows the expected savings in energy costs with new energy efficient improvements. The savings are adding to the borrower’s income on conventional-type loans. Two percentage points are added to the qualifying ratios Federal Housing Administration (FHA) loans or Veterans Administration (VA) loans. The EIM “stretch” allows a buyer to purchase more home for his/her money.
 
The mixed (good and bad) news is that in many markets, home prices are down. Rates are very low and now with the EEM or EIM lift homes in general are even more affordable. With energy improvements that affordability is even more attractive to today’s home buyers. Realtors® with the new NAR GREEN Designation know the importance of energy efficiency and the EEM and EIM options. To find a rater in your area go to the Residential Energy Services Network web page at www.natresnet.org. Be sure your lender knows about and offers the EEM and EIM mortgages; tye-dye tee shirt optional.