Energy Efficient Mortgages
By Susan M. Keenan
Photo: © Galina Barskaya - Dreamstime
Energy efficient mortgages are becoming more common as the world becomes energy conscious and as consumers feel the pinch of rising energy costs. An Energy Efficient Mortgage (EEM) is one of the options available for prospective homeowners who are not only interested in buying a home, but who are also interested in making that home as energy efficient as possible. Since the cost of energy-efficient improvements is included in the overall amount of the mortgage, it has been dubbed as an Energy Efficient Mortgage (also called “green mortgage) to distinguish it from the traditional mortgage.
Buying a Home that Needs Energy Improvements
An Energy Efficient Mortgage is a good option for those prospective homeowners who are considering buying a home that is less than energy efficient. They can plan the improvements that are needed and implement the changes once the home is purchased without worrying about where they’ll get the money to cover their expenses. This mortgage allows borrowers to assume a debt that is larger than one they would have been qualified to receive under normal circumstances.
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The Home Will Need an Energy Audit
This audit is required to ensure that the completed improvements will actually make the home more energy efficient. An energy audit, which typically costs around three hundred dollars, can be included in the mortgage as well.
Only Energy Saving Improvements Qualify
The energy audit determines the potential savings in energy over the useful life of the improvements and compares them to the total cost of the improvements. Each comparison is completed separately to determine which improvements merit inclusion. Any home improvement that produces a greater value in energy savings than the cost to incorporate the improvement passes the test. This means that the expected cost to implement these changes to the home can be assumed into the mortgage. Any suggested changes to the home’s energy set up that do not pass the test cannot be included in the overall cost of the borrower’s loan.
Applicants Must Meet Qualifications
Lenders who have been approved by the Federal Housing Administration (FHA) can offer EEMs to qualified homebuyers. As with any other mortgage, the interest rate charged on this type of loan is determined by the borrower’s credit score, employment history, available funds, and more.
Since an EEM is backed by the FHA, certain regulations apply. The borrower must be able to place at least a 3.5% down payment on the property. Additionally, this amount is calculated on the appraised value or agreed-upon sale price of the home. |
