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Published on November 29th, 2012 | by GBE FACTS

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Guest Post: Energy Efficient Mortgages – Go Green & Improve the Home

Introduction

As the idea of green grows, industries are looking for incentives to promote being eco-friendly. The government and private institutions are sponsoring programs that offer cost-effective mortgages developed to help make a home more energy efficient. A ‘green mortgage’ or ‘energy efficient mortgage’ offers homeowners the opportunity to get or borrow money to upgrade their homes to energy efficient levels. These renovations can include, but are not limited to:

  • Double-paned windows
  • Modern HVAC systems
  • Tankless water heaters
  • Insulation
  • Repairing or replacing the chimney
  • Installing active or passive solar technology

This covers both currently owned homes and new ones being purchased. The idea is to create more environmentally friendly living spaces that are using fewer resources for cooling and heating. This also lowers utility expenses dramatically.

The Federal Housing Administration, Fannie Mae and the U.S. Department of Veteran Affairs all have a green mortgage program. Freddie Mac offers mortgagees a projected utility savings by taking home upgrades into the equation when setting loan amounts.

Eligibility

To determine eligibility, a home energy rater must conduct an inspection of the home. If the home is already energy efficient, according to the rate given, financing will be approved.

If the home needs upgrading, decide what improvements the home could use before contacting a lender to discuss the criteria for eligibility. Criteria could vary depending on the lender. They’ll advise on finding a licensed energy rater to come out and evaluate the home. Once the rater has delivered a report to the lender and the homeowner, negotiations will begin. The evaluation will come in the form of a Home Energy Rating System, or HERS, report. The report will take into account:

  • Overall rating of the property as is
  • Recommendations for energy upgrades
  • Estimates of pricing, saving and life of upgrades
  • Estimate of the house’s rating after upgrades
  • Before and after estimates of the home’s annual energy costs

The report is going to cost between $300 and $800.

Savings

Here are a few facts regarding how upgrading the home with an energy efficient mortgage will reduce the property’s carbon footprint and save money.

  • Cooling and heating is responsible for 50–70 percent of total energy used in the average American home
  • 60 percent of existing homes aren’t sufficiently insulated
  • Updating insulation can save 20 percent on costs or up to 10 percent of total yearly energy bills
  • Outdated windows account for close to 25 percent of energy loss
  • Double-paned window can lower energy use up to 18 percent in hot climates during the summer and by 24 percent in cold climates in the winter
  • Typically, in homes with central air and heating systems, outdated, faulty duct work can result in almost 20 percent of air loss
  • Energy Star-rated dishwashers can save as much as 1,200 gallons of water a year
  • Programmable thermostats can save almost 2 percent on heating bills and more than 3 percent on cooling bills. This can translate into $180 in annual savings.

Advantages

The best thing is that a green mortgage is not a type of second mortgage. It is created separately from any new or existing mortgage, but is rolled into the current mortgage. The homeowner is only making one payment a month. Another type of green mortgage has discounts on the loan fees and/or interest rates for homes that are already certified as energy efficient.

Mortgage interest payments are already tax-deductible. A green mortgage would be even more cost-effective. Its use to improve the home is considered better than paying with a loan, cash or credit card where there may not be a tax benefit.

Green mortgages can also be greatly beneficial in the following ways:

  • Upgrade home to energy efficient levels with the latest accommodations like new heating and cooling systems, windows, insulation, etc.
  • Qualify for a mortgage refinancing for green renovations
  • Not only make current, older homes comfortable and more affordable with smaller utility payments, but increase its value with these improvements
  • Use less energy while maintaining climates
  • Lessen family footprint

An energy efficient home isn’t merely saving money. Nor is it just helping the environment. These homes are warmer in the winter and cooler in the summer. An upgraded home offers more comfort than a comparable home that doesn’t have the latest energy efficient facilities. Imagine a life without drafts or cranking the air conditioning system.

Types

There are three distinctive types of energy efficient mortgages. The details may vary depending on the lender.

  • Conventional EEM
    Arguably the best of the green mortgages. It’s a loan offered by lenders selling their homes to Freddie Mac or Fannie Mae. It allows the homeowner to borrow up to 15 percent of the property’s appraised value to upgrade the home to green levels.
  • Federal Housing Administration EEM
    Take advantage of FHA financing benefits while borrowing up to 5 percent of the home’s value or $4,000, whichever’s greater. The maximum on the loan will be $8,000 though.
  • Veteran Administration EEM
    This energy efficient mortgage program is specifically for present and past military personnel. If purchasing an existing property, the program allows green upgrades for up to $6,000. This is regardless of the property’s value.

Summary

A green mortgage is an excellent way for homeowners to save money in the long term. It’s also an exceptional method for changing how its footprint affects the environment. One can get credit for upgrades already in the home or plans for upgrading an existing or new property. It will also provide a great sense of comfort as the family enjoys a healthier environment. Read Guide to Green Mortgages / Energy Efficient Mortgages for a concrete information about this type of mortgage.

Brentt Taylor writes for Mortgage Loan, which is established year 1995 and owned by Mortgageloan Directories and Information LLC. The site provides information, tools and up-to-date news about mortgage and financial-related matters. The site aims to empower consumers create smart and better financial decision for themselves and for their families.

Image: Small house in hand from Shutterstock




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3 Responses to Guest Post: Energy Efficient Mortgages – Go Green & Improve the Home

  1. Lisanne Jordan says:

    Just an update to the information in this post. The $8,000 cap on the FHA EEM program was removed in June of 2009 in MORTGAGEE LETTER 2009-18.

  2. Claire says:

    This is great, especially now that a new study shows that homeowners with energy efficient houses are 32% less likely to default on their mortgages – so this program is really in the lender’s best interest. Read more about this here: http://www.poplarnetwork.com/news/energy-efficient-homes-less-likely-default-mortgages

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