What is an Home Energy Efficiency Loan?
There are multiple options when it comes to finding funding to help build your new energy efficient home or retrofit your existing one. Those options include Eneryg Efficient Mortgages, FHA 203K, as well as the typical conventional mortgage. Rick Williams of www.ecoenergyloan.com does an excellent job explaining them. The following is a brief excerpt from his site:
Conventional Mortgages
In today’s tightened credit market, homeowners who can provide documented income, credit scores greater than 640 and a 20% down payment or equity in their property will find the lowest monthly payments in a conventional mortgage. Whether it be a 15 or 30 year fixed mortgage or a shorter term interest only mortgage, those who seek cash out for energy retrofits or solar will find the lowest monthly payments with conventional mortgage.
FHA 203K
FHA’s Streamlined 203(k) program allows home buyers to finance up to an additional $35,000 into their first mortgage to improve or upgrade their home. With this established loan product, home buyers can quickly and easily tap into cash to pay for property repairs or energy improvements with only 3.5% down payment or equity in the property. The advantage to the homeowner or prospective buyer is that the entire cost of these improvements are incorporated into the 30 year first mortgage providing low monthly payments.
EEM NOW UP TO 5% OF APPRAISED VALUE
FHA’s Energy Efficient Mortgage program (EEM) helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing as part of their FHA insured home purchase or refinancing mortgage.
EEM is one of many FHA programs that insure mortgage loans–and thus encourage lenders to make mortgage credit available to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first time homebuyers) and to residents of disadvantaged neighborhoods (where mortgages may be hard to get).
A little more....again, an Energy Efficient Mortgage (EEM) is a mortgage that credits a home’s energy efficiency in the mortgage itself. EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.
To get an EEM a borrower typically has to have a home energy rater conduct a home energy rating before financing is approved. This rating verifies for the lender that the home is energy-efficient.
EEMs are typically used to purchase a new home that is already energy efficient such as an ENERGY STAR qualified home. The term EEM is commonly used to refer to all types of energy mortgages including Energy Improvement Mortgages (EIMs), which are used to purchase existing homes that will have energy efficiency improvements made to them. EIMs allow borrowers to include the cost of energy-efficiency improvements to an existing home in the mortgage without increasing the down payment. EIMs allow the borrower to use the money saved in utility bills to finance energy improvements. Both EEMs and EIMs typically require a home energy rating to provide the lender with the estimated monthly energy savings and the value of the energy efficiency measures — known as the Energy Savings Value.
EEMs (and EIMs) are sponsored by federally insured mortgage programs (FHA and VA) and the conventional secondary mortgage market (Fannie Mae and Freddie Mac). Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs. EEMs and EIMs are fairly new in the industry but are gaining in popularity. Contact your local lender to inquire whether or not they offer these mortgages.
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