An Energy-efficient Mortgage or Green Mortgage is a type of Mortgage loan that allows borrowers to purchase an eco-friendly home or make energy-saving improvements to the existing home. Most homeowners spend thousands of dollars a year on energy bills and pay considerable amounts in monthly utility payments. The Energy-efficient Mortgage or EEM Program offers a way to help borrowers be more eco-friendly and enjoy significant cost savings. EEM provides a handy way for current and prospective homeowners to finance the cost of energy-efficient upgrades in both existing and new homes.
Energy-efficient Mortgages are available as a home purchase or refinance the Loans. These Loans are not the common type of mortgage, however, shoppers still have a lot of options including conventional mortgage loans or government-insured mortgage loans. The Energy-efficient Mortgage loans can be conventional mortgage loans, FHA Loans, or VA Loans, however, the home serves as collateral for the loans. With low interest rates and plenty of loan options an Energy-efficient Mortgage is the best way to finance energy-efficient home improvement at relatively low costs.
Energy-efficient Mortgage loans have been created to help families save money on their monthly utility bills by financing cost-effective energy improvements into their Mortgage Payments. Cost-effective energy improvements mean the home is less than or equal to the amount of money saved through reduced utilities and money expenses. Energy-efficient Mortgage is the Type of FHA Mortgage Loan. There are the following types of FHA Mortgage loans such as FHA 203(b) loan, FHA 203(k) Loan, FHA 203(h) Loans, HECM Loans, EEMs Loans, and FHA 245(a) Loans.
What Is an Energy-efficient Mortgage?
An Energy-efficient Mortgage or EEM is a financial loan product that allows eligible borrowers to fully pay for and finance Energy-efficient improvements under favorable terms. These Mortgage Loans are designed to help homeowners finance eco-friendly home upgrades or the purchase of homes that produce significant savings on their monthly utility by helping them go greener. One potentially overlooked benefit of the Energy-efficient Mortgage is that it can increase borrowers’ purchasing power when they are in the market to buy a home. Lenders know homes that meet energy efficiency standards have lower utility costs and the money they save on utilities can in turn be applied to their mortgage.
How Does Energy-efficient Mortgage Work?
When an applicant accesses an Energy-efficient Mortgage (EEM), a Mortgage Lender considers how much money the borrower stands to save the utilities by either purchasing or refinancing an energy-efficiency home or making energy-efficiency upgrades. These estimated savings are determined through the energy assessments and can help the borrowers qualify for the larger loan since the savings free up more in their budget for Mortgage Payments.
If the lender allows it then it might be able to do some of the renovation work to save money, however, the borrowers can not pay by themselves and they can use the EEM funds to pay contractors or for materials. The borrowers have a certain amount of time to hire the contractors and complete the improvements after the closer of loans, usually 3 to 6 months. Once the improvements are finished then lenders will order an inspection of their home to verify that the improvements have been made and are in fact increasing the home’s energy efficiency.
What Are the Types of Energy-efficient Mortgages?
There are several different Energy-efficient Mortgage (EEM) Programs are available for homebuyers, each of which comes in different forms and different features, such as:
- Energy-efficient Mortgage FHA Loans: It is the most popular choice for homeowners given the minimum down payments are coordinated to 3.5% of the total home purchase price. These Mortgage loans allow borrowers to add the cost of improvements to their loan amount if evaluations find that the total costs of these improvements are lower than the amount of energy savings to be enjoyed.
- Energy-efficient Mortgage VA Loans: It is a mortgage loan offered under favorable terms to service members, veterans, and qualifying spouses. The energy-efficient improvement can total no more than $6000 on top of the approved VA loan amount. However, the Borrowers are required to complete any energy-efficient improvements within six months of closing on the home.
- Energy-efficient Mortgage Conventional Loans: The terms of these Mortgage Loans are the most generous of all the Energy-efficient Mortgage Loan types. eligible borrowers have to obtain one and they can take the amount that they qualify for under the conventional mortgage loans plus up to 15% of a home’s appraised value for use on energy-efficient improvements.
What Are the Eligibility Requirements to Qualify for the Energy-efficient Mortgage?
There are few FHA requirements necessary to qualify for an Energy-efficient Mortgage. Borrowers must first qualify for the mortgage through their lender based on minimum financial institution requirements. Here are some Energy-efficient Mortgage (EEM) requirements include:
- The maximum amount of energy package to be financed can not exceed 5% of the home’s adjusted value, 115% of the median area price of a single-family home, and 150% of the national mortgage limits.
- A qualified energy rater, assessor, or auditor must conduct a home energy assessment. It is basic for the energy savings value or the improvement budget.
What Projects Are Allowed for Energy-efficient Mortgage?
Energy-efficient improvements financed through an EEM can include:
- Heating, ventilation, and cooling systems.
- Smart thermostats.
- Energy-efficient windows and doors.
- Caulking and weather-stripping.
- Low-flow water fixtures (e.g., toilets, showers).
- Home insulation and weatherization.
- Energy-saving appliances, such as refrigerators, water heaters, washers and dryers.
- High-efficiency light bulbs.
- Renewable energy, such as solar, wind, or geothermal systems.
How To Apply For The Energy-efficient Mortgage (EEM)?
All the eligible borrowers who are making a plan to buy a home or refinance will need to qualify for the regular mortgage or refinance first. The borrowers have to fulfill the credit score, debt-to-income ratio (DTI), and down payment requirements criteria to qualify for the loan. When a borrower applies for an Energy-efficient Mortgage (EEM), they might have to meet additional credit and documentation requirements. The most important is to obtain an energy assessment, in which the energy consultant examines the home and draws up a Department of Energy (DOE) Home energy score report, home energy rating system reports, or other comparable reports. These reports contain information about potential improvements, their costs, and how much they will save.
Energy-efficient Mortgage (EEM) Reviews
Energy-efficient mortgages (EEM) are best for homeowners who want to reduce their energy costs in the short run and increase their home’s value in the long run. They are also the popular choice with buyers who want to invest in home solar panels and other cost-effective technologies. Here are some Pros and Cons of an Energy-efficient Mortgage (EEM):
Pros:
- Energy-efficient Mortgage (EEM) allows Homeowners to borrow more than a home’s current value and use the excess to make eligible home improvements.
- Borrowers who meet the qualifications can qualify for the larger loan to afford energy-efficient homes.
- As compared to other types of financing, an Energy-efficient Mortgage (EEM) can also offer lower interest rates since the cost savings of energy efficiency are factored into the loan.
- The Savings from lower monthly energy bills often offset the costs of higher mortgage payments.
Cons:
- Energy-efficient Mortgage (EEM) requires a home energy audit.
- Borrowing more money upfront leads to higher loan costs in the long run.
- Energy-efficient mortgages (EEM) are not as common as other types of home loans, so borrowers have a smaller list of lenders to choose from.
- The Borrowers are limited to energy-efficient upgrades. so if they want to tackle cosmetic improvements or other structural projects that don’t involve energy efficiency, then another option might be a better fit.
Frequently Asked Questions (FAQs)
Question 1: Can I combine an Energy-efficient Mortgage (EEM) with other types of Financing?
Answer: Yes, Energy-efficient Mortgage (EEM) can be combined with other types of financing such as FHA 203 (k) Loans.
Question 2: How Do I Find Energy-efficient Mortgage (EEM) In My Areas?
Answer: You can Find Energy-efficient mortgages (EEM) in your area by searching for local lenders that offer them, including banks, credit unions, and Mortgage Companies.
Question 3: When would I need an Energy-efficient Mortgage (EEM)?
Answer: You would need an Energy-efficient Mortgage (EEM) whenever you purchase a new home or refinance your existing home. if you are planning to purchase or refinance your home, then consider the energy improvements you would need to start the process of obtaining the Home Energy assessments.
Question 4: What Is the HERS Rating and How Do I Get One?
Answer: The HERS Rating is the nationwide industry standard for calculating your home’s energy performance. The scoring scale starts from 10 to 150, where 100 marks a standard home and 70 is 30% more energy-efficient than a standard home. You can find a local HERS rater by searching the RESNET National Rating Registry.
The Bottom Lines
Energy-efficient Mortgages (EEMs) are a handy way to reduce energy bills, lower annual expenses and minimize a household’s overall energy consumption. The EEM creates more opportunities for homeowners to purchase and install energy-efficient home upgrades or give outdated home systems a much-needed overhaul. By allowing prospective homebuyers or current property owners to more easily finance green and eco-friendly solutions, Energy-efficient Mortgages offer a helpful way to lessen a household’s impact on the environment.
