Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About the Energy Efficient Mortgage (EEM)
Recently an Energy Efficient Mortgage (EEM) is the in thing, so what does energy efficient mortgages mean?
Whether you are buying a new home, making improvements to an existing home or refinancing an old one, or only wanting to know more about Energy Efficient Mortgages.
This article today will give you a better understanding of various aspects of:
- Energy Efficient Mortgage Programs
- Who they benefit
- What they can pay for
- How to get it
- Why these upgrades matter to the environment
Energy efficient mortgages can be used by you to purchase or refinance a house, with ENERGY STAR certification and are already energy efficient.
Similarly, these mortgages can also be used to finance energy efficiency improvements to your existing home.
How to make a Mortgage Environmentally Friendly?
An environmentally friendly type of home loan is called a “Green mortgage”, it sometimes is called as Energy Efficient Mortgage Program, these mortgages are special loans that are designed to make your home more energy efficient and saving you money at the same time.
How an EEM can work for you?
One of the best ways that an Energy Efficient Mortgage Program works is by increasing your purchasing power and allowing you to qualify for a larger mortgage.
A home that meets standards of energy efficiency, will enable you to pay lower monthly bills.
Resulting in a larger percentage of your income can be applied to your mortgage when it comes to calculating the total amount that you qualify for.
An energy efficient mortgage takes into account the cost savings due to lower utility bills that accrue to the homeowner.
These utility savings are used by the lender to provide more favorable financing terms to the borrower, like a better debt-to-income qualifying ratio which would enable the borrower to qualify for a larger loan amount and have a better, more energy-efficient home.
A borrower needs to have a home energy rater or other trained professional conduct a home energy assessment before the financing for an energy efficient mortgage is approved.
This assessment shows the lender that the home is energy-efficient or will be energy efficient after energy efficiency improvements are done.
Energy efficient mortgages are sponsored by FHA & VA that are federally insured mortgage programs and the conventional secondary mortgage market. Conventional EEMs, FHA EEMs, or VA EEMs can be offered by lenders.
Conventional Energy Efficient Mortgage Program
A borrower’s purchasing power increases with conventional EEMs when they make energy efficient upgrades to their home during purchase or refinancing.
To reduce utility costs and improve the comfort and safety of their homes, borrowers can make upgrades by financing energy improvements directly in a purchase or refinance mortgage with Fannie Mae’s Homestyle Energy mortgage.
Upgrades could include solar, geothermal, or even wind power. Borrowers can also use HomeStyle Energy to pay off existing energy debt, and also PACE loans.
Your lender will be the best person to give you more information about it.
FHA Energy Efficient Mortgage Program
Homeowners can save money on utility bills by using FHA’s Energy Efficient Mortgage program (EEM) because it enables them to finance energy efficient improvements with their FHA-insured mortgage.
Under this program, a borrower’s mortgage which is used to purchase or refinance a principal residence is insured by FHA, and also the cost of energy efficient improvements that need to be made on the home.
The borrower’s job is only to qualify for the loan amount used to purchase or refinance the house he does not even need to qualify for the portion, which is to be used to finance the energy efficient up-gradation.
The energy efficient improvements, which are financed, should be cost-effective and can include the cost of materials, labor, inspections, and the cost of a home energy assessment by a qualified energy assessor.
VA Energy Efficient Mortgage Program
This program is for qualified veterans and present military personnel and can be used only when purchasing or refinancing a home.
For energy efficient upgrades it allows you to borrow up to an additional $6,000 as part of your home purchase /refinance loan.
An Energy Efficient Mortgage lender could offer you more than one type of EEM and possibly all three as well.
The loans can provide an affordable way to make upgrades through the initial process could be costly but save money over the long run, such as double-paned windows, tank-less water heaters, a high-efficiency furnace or air conditioning system, and new insulation.
The result is a more environmentally friendly home with significantly lower costs for heating and cooling.
Energy Efficient Mortgages though created as a separate loan aren’t a type of the second mortgage they are finally rolled into your primary mortgage so you can make a single mortgage payment every month.
Let us check how much money you can save with a Green Mortgage and as a result reduce your home’s carbon footprint:
- In an average American home 50–70% of the total energy used is for heating and cooling accounts.
- In the U.S. 60% of the existing homes are not properly insulated.
- When you update your home’s insulation it can save up to 20% on heating and cooling costs or up to 10% of your total yearly energy bill.
- Of the annual heating and cooling costs for the average American home, according to the Department of Energy, the energy loss from outdated windows accounts for nearly 25%.
- If you consider even the most basic double-paned window then you can reduce energy use by up to 24% in cold climates during the winter and by up to 18% in hot climates during the summer.
- About 20% of the air is lost because of faulty, outdated ductwork in houses with central air and heating.
- A dishwasher accounts for 2% of your gas or electric bill so a new Energy Star-rated dishwasher would use less energy and save as much as 1,200 gallons of water a year.
- Approximately 2% can be saved by programmable thermostats on heating bills and more than 3% on cooling bills. So you would be saving up to $180 a year.
Energy Efficient Mortgage Programs can assist with the following:
- To get money for investing in energy efficient upgrades for a new house.
- Help you qualify to pay for a house that is already energy efficient with a larger mortgage.
- When refinancing, a mortgage helps you qualify for funds for green renovations.
- Help with lower utility payments, to make your older homes more comfortable and affordable.
- Help you to maintain the temperatures in your home and as a result, lessen your family’s footprint by using less energy.
Conclusion
Energy Efficient Mortgages enables you to save your money and benefit the environment at the same time by making your home more comfortable and durable.
Whatever your reasons for opting for a Green Mortgage will give the same result a more comfortable, energy efficient, environmentally sound home that is cheaper to maintain and has lower monthly utility costs.
