When you purchase a home or get a refinance through FHA sources, you will be given a variety of loan options. One of these is the energy efficient mortgage. An EEM is a mortgage that takes into account the necessary financial requirements to make the home energy efficient. An energy efficient home makes for a healthier environment, and can save you money on your monthly mortgage payment.
How does it Work?
When you get an EEM, the lender will add an additional amount to your already existing mortgage that will cover the cost of the upgrades to your home. The amount that is increased is typically in proportion to the amount of money you will need for the improvements. However, there are a couple of limits.
- The loan increase cannot be more than 5% of the property value
- The loan increase cannot be more than 115% of the median value of surrounding single family homes.
- The loan increase cannot be more than 150% of the limit that conforms to the guidelines of Freddie Mac and Fannie Mae
The amount you add to the mortgage is the lesser of these three things. To put it simply, the loan can increase anywhere from $4,000 to $8,000. This isn’t a huge mortgage increase, it’s just enough to get you the improvements you need. The idea behind the energy efficient mortgage is to give you the funding you need to make the improvements on your home so you can reduce your monthly utility bills without putting yourself in too much debt. You will have to pay the increase on your mortgage, but by reducing the utilities you can save money every month. Typically with an EEM, you don’t have to pay a down payment on the additional funds borrowed. You simply add them to the loan and then pay them down over time.
Is there a Conventional Option?
Conventional lenders do not offer EEM’s that fit FHA guidelines. However, they do have underwriting guidelines that were designed to be flexible in the case of a homeowner wanting to upgrade or purchase an energy efficient home. These guidelines make it possible to secure the funding for the home, but you will need to discuss with your lender what requirements need to be met, and the actual benefits of the guidelines in regards to your home.
Requirements for an EEM
Before you can qualify for an EEM you need to get an HERS (Home Energy Rating System) done on the home. For this inspection a professional will come to your home and do a thorough inspection of every aspect of the home, particularly those that will improve the energy efficiency. He will then give you a rating which you can present to the lender. The ratings are done on a 1 – 100 scale. The lower the number the higher the efficiency. The report will show how the home rates in all aspects combined, and it gives individual assessments of the following:
- Recommended upgrades.
- Estimate the cost of the upgrades
- Estimate the amount that can be saved annually
- Estimate how beneficial the upgrades will be
- Gives a rating estimate after completion of the upgrades.
The inspector will also give you an estimate as to the life of the improvements – meaning how long they will last once they have been completed.
What are the EEM Benefits?
When you increase the energy efficiency of a home, you save money every month on utility bills and you make the home more attractive to potential buyers when you choose to sell. People today are interested in energy efficiency and environmental health. Energy efficient homes are more attractive to many homeowners because of the potential benefits. So the home is more attractive in the marketplace, it’s more affordable because of the monthly savings in utility bills, and in many cases these homes sell more quickly.
EEM loans can be acquired through FHA lenders all across the nation. Every state offers these loans and thousands of homeowners are benefitting from them. EEM loans are proving to be very successful in making it possible for homeowners to get the improvements they need at a price they can afford.