Energy Mortgages 101

A new kind of green mortgage

The demand for energy efficient homes and buildings has been growing steadily over the past decade, and people around the world are learning about the numerous benefits of building eco-friendly architecture.  Along with helping the environment, energy efficient buildings and homes also consume less energy which helps owners save thousands of dollars on HVAC and electricity bills.  There are a lot of people in the US that want to live in an energy efficient house, but don't have the money to purchase one.  If you're interested in owning an eco-friendly house but don't think that you have the funds to do so, there is a way you can afford one.

The Beginning

In 1980 the federal government developed special mortgages for people who want to own energy efficient homes, or make improvements on their current home.  Energy Efficient Mortgages (EEMs) is an umbrella term all of the different kinds of energy mortgages that are designed to help homeowners afford their new energy efficient homes.  EEMs are sponsored by the Federal Housing Administration (FHA), the US Department of Veteran Affairs (VA), and other federally sponsored mortgage programs along with lenders in the conventional secondary mortgage market.  These mortgages give borrowers that want to purchase new energy efficient homes larger loans in order to finance their new home. 

Borrowers that want to make the home they current live in more energy efficient have the option to refinance their current mortgage to get a larger loan in order to pay for home improvements.  Borrowers that are making repairs to existing homes can use money they've saved on utility to bills to finance their repairs.  People who are interested in EEMs need a certified home energy rater to inspect their homes in order to ensure that they meet energy efficiency standards.  EEMs lenders need to know about the home's energy rating, the estimated amount of monthly energy savings, and value of the home's energy savings value (ESV). 

Different Kinds of EEMs

People who are interested in EEMs have different loan options they can choose.  Conventional EEMs increase the purchasing power of buying an energy efficient home by allowing lenders to increase the borrower's income by a dollar amount equal to the estimated energy savings.  EEMs given by the FHA have mortgage loan amounts that can be increased by the cost of effective energy improvements. The maximum amount of the portion of the EEM for energy efficient improvements is the equivalent of 5% of the property value or 115% of the median area price for surrounding homes.  EEMs from the VA are offered to military personnel, reservists, and veterans who qualify.  The VA EEM sets a limit on energy improvements at $3,000-$6,000.