So you’ve heard about energy-efficient homes, but what about an energy-efficient mortgage? The popularity and availability of Energy Star-qualified homes has led to the creation of mortgage products that recognize energy-efficient homes cost homeowners less to operate on a monthly basis.
An Energy Efficient Mortgage (EEM) allows homebuyers to stretch their debt-to-income qualifying ratios, or qualify for a larger loan amount, by adding the anticipated energy savings to the borrower’s income. Either way, the Energy Efficient Mortgage makes it easier for borrowers to qualify for loans on homes with specific energy-efficient improvements.
NUMBERS? A recent survey of local banks indicates few borrowers have requested these products in the past. Members of the Triad Green Building Council have embraced the Energy Star program, and the number of qualified homes has increased dramatically in recent years. If you are refinancing or purchasing an Energy Star home, be sure to inquire about the Energy Efficient Mortgage.
There are two types of energy mortgages:
• The Energy Efficient Mortgage is typically used to purchase a new energy-efficient home, such as an Energy Star-qualified home.
• An Energy Improvement Mortgage finances the energy upgrades of an existing home that needs energy improvements. Upgrades may include upgraded insulation, more energy-efficient windows, Energy Star appliances, higher-efficiency heating, ventilation and air-conditioning equipment, and water heaters.
To qualify for an Energy Efficient Mortgage, a borrower will be required to have the home verified by an inspector through a Home Energy Rating System. The inspector verifies the home meets the Environmental Protection Agency’s strict guidelines for energy efficiency. On an Energy Star-qualified home, the HERS rating has been performed as part of the qualification process. The home will receive a score from the home energy rater, along with an estimate of the anticipated energy savings when compared to a standard home.
If you are applying for an Energy Improvement Mortgage, the HERS inspector will identify the areas of greatest energy loss and suggest cost-effective improvements. The report will show the HERS rating before and after the improvements are made and show the estimated annual energy savings from making the upgrades. The homebuyer can then include the costs of the improvements in their mortgage loan, without any additional down payment, subject to the lender’s restrictions.
An energy audit by a qualified HERS rater will usually cost $300 to $800 and provide valuable information on the home’s energy characteristics. The rater will inspect the home’s HVAC systems, windows and insulation levels during the inspection. Additional performance tests such as the Blower Door test and the Duct Blaster test may be performed to determine the air leakage in the home.
A listing of qualified HERS raters can be found at www.resnet.us.
Energy Efficient Mortgages are sponsored by federally insured mortgage programs, such as the Federal Housing Administration and Veterans Affairs, and the conventional secondary mortgage markets such as Fannie Mae and Freddie Mac. There is also a Veterans Affairs Energy Efficient Mortgage available to qualified military personnel and veterans. Energy Efficient Mortgages are available as standard fixed rate, adjustable rate mortgages (ARMs) and balloon mortgages.
If you are considering purchasing an Energy Star home, or making energy efficient improvements to your existing home, be sure to ask your lender about Energy Efficient Mortgages. If they are not already familiar with the product, ask them to learn about EEMs or find a lender that is experienced and can guide you through the different programs.
Scott Allred is chairman of the Triad Green Building Council and owner of Precept Construction. He can be reached at scott@preceptconstruction.com or 286-6811. For more resources on green building, visit www.preceptconstruction.com.
