The Energy Efficient Mortgage (EEM) is a relatively new home financing option that nearly every home buyer can take advantage of. Thousands of home buyers across the U.S. are recognizing the benefits that this new mortgage option provides. Recognizing the obvious benefits of having an energy efficient home, more and more home buyers are utilizing this unique financing tool in order to increase their home’s energy efficiency and lower their electric bills.
How Does an EEM Work?
An Energy Efficient Mortgage allows home buyers to qualify for larger home mortgage loans than they would have been qualified for otherwise. EEM’s provide home buyers with excess funds to install energy efficient upgrades to their new home, thus making their homes more environmentally friendly and reducing their energy bills. Getting an EEM is a terrific way for home buyers to save money month after month while doing their part to decrease their impact on the environment at the same time.
Different Kinds of EEM
There are different kinds of EEM’s to choose from and securing one is easier than many home buyers might believe. Known as “green” mortgages, most mortgage lenders offer three different types of EEM’s:
- Conventional EEM: Most lenders who sell their loans to either Fannie Mae or Freddie Mac offer conventional EEM’s to new home buyers. This type of EEM allows homebuyers to borrow the appraised value of their home plus an additional 15% in order to make energy efficient home improvements.
- FHA EEM: A Federal Housing Administration EEM allows home buyers to borrow the appraised value of their home plus at least an additional $4,000-$8,000 or 5% of their home’s appraisal value, whichever amount is less. This type of EEM may provide a lower mortgage than a conventional EEM, but it gives home buyers access to the FHA’s wide range of financing options.
- VA EEM: A Veteran’s Association EEM is very similar to an FHA EEM, but only past and present military personnel may take advantage of this particular mortgage option. Unlike an FHA EEM, a VA EEM grants a fixed amount of $6,000 regardless of the home’s appraisal value.
What Does an EEM Pay For?
The additional money from an EEM is intended to be used only for energy saving improvements. Most homes lose their energy efficiency through improper insulation and cracks that allow hot or cold air to penetrate the home. Therefore, the additional funds received from an EEM usually go towards air sealing and insulation improvements.
In some instances, roof or chimney repairs, energy efficient windows, and new air conditioning systems can be covered by an EEM. In other cases, energy generation equipment, such as solar panels, can be added with EEM funds. However, these improvements usually cost more than the additional funds included in an EEM. Unfortunately, in most cases homebuyers cannot use the money from an EEM to choose what improvements they would like to undertake. All improvements made using an EEM must be suggested by the inspector in their HERS report.
Qualifying For a Green Mortgage
Most mortgage lenders work with secondary mortgage markets and insured programs like Fannie Mae and the FHA in order to provide EEM’s for their clients. Most EEM’s will differ from lender to lender, therefore prospective home buyers should talk to many lenders in order to find the EEM that is best for them. Qualifying for an EEM is simple and rarely a concern. Most homebuyers who qualify for a traditional mortgage qualify for an EEM as well. The only requirement needed to include an EEM with the traditional mortgage is making sure the improvements are cost effective. For example, if new energy efficient windows will cost $5,000 to install, then the energy savings from the new windows must be projected to at least equal the $5,000 it cost to install the windows.
This is where the HERS report becomes significant. For homebuyers of existing homes to qualify for an EEM, the energy-saving improvements must be verified by the HERS report. The report includes the current state of the home’s insulation, windows, and appliances, as well as the area’s climate and utility rates. It then details recommended improvements, the cost of the improvements, and the annual savings as a result of having the improvements done. Finally, the HERS report must state that having the improvements done will save the homebuyers money on their utility bills.
Surprisingly, buyers of new construction homes can also qualify for an EEM. The only requirement for buyers of newly constructed homes to enjoy the added benefit of an EEM is to have the builder certify that the home meets energy efficiency guidelines.
Energy Efficient Mortgages provide any home buyer the ability to have access to additional funds for making cost-saving improvements to their new home. Rather than having to use their savings, credit cards, or non-traditional funding with high interest rates, home buyers can have access to additional funds at the same low interest rate of a mortgage and make a single mortgage payment each month. With so many benefits and no apparent downside, it is not surprising that more and more home buyers are taking advantage of this wonderful opportunity.
Brentt Taylor writes for Mortgage Loan, which is established year 1995 and owned by Mortgageloan Directories and Information LLC. The site provides information, tools and up-to-date news about mortgage and financial-related matters. The site aims to empower consumers create smart and better financial decision for themselves and for their families. MortgageLoan has written a complete guide about Green Mortgages, for more information visit their site.