Energy Efficient Mortgage
|THE ENERGY EFFICIENT MORTGAGE MEANS COMFORT AND SAVINGS
When you are buying, selling, refinancing, or remodeling your home, you can increase your comfort and actually save money by using the Energy Efficient Mortgage (EEM). It is easy to use, federally recognized, and can be applied to most home mortgages. EEMs provide the borrower with special benefits when purchasing a home that is energy efficient, or can be made efficient through the installation of energy-saving improvements.
Home owners with lower utility bills have more money in their pocket each month. They can afford to allocate a larger portion of their income to housing expenses. If you have more cash, why not buy a better, more comfortable home? There are two options with the Energy Efficient Mortgage.
|WHO BENEFITS FROM THE ENERGY EFFICIENT MORTGAGE?
Pay for energy improvements easily, through your mortgage. Your lender can increase your loan to cover energy improvement costs. Monthly mortgage payments increase slightly, but you actually save money because your energy bills will be lower!
An EEM can only be done if an official home energy rating, or HERS Report, indicates that it will save you money.
THE TWO SIDES OF THE EEM COIN
|Finance energy improvements!
Cost-effective energy-saving measures may be financed as part of the mortgage!
Make an older, less efficient home more comfortable and affordable!
|Increase your buying power!
Stretch debt-to-income qualifying ratios on loans for energy-efficient homes!
Qualify for a larger loan amount! Buy a better, more energy efficient home!
|HERS, or Home Energy Rating Systems
A HERS report is similar to a miles-per-gallon rating on a car. HERS are program s which provide evaluations of individual homesÕ energy-efficiency. A HERS report is prepared by a trained Energy Rater. Factors such as insulation, appliance efficiencies, window types, local climate, and utility rates are used to rate the home and calculate energy costs.
A HERS Report includes:
Overall Rating Score of the house as it is.
Rating scores are between 1 and 100. Higher scores indicate greater efficiency. Cost-effective upgrades are those which will save more money through energy savings than they cost to install.
U.S. Department of Energy recommended Home Energy Ratings contain a numerical score from 1 to 100, a one to five star-plus rating, and the estimated energy costs. Higher scores indicate greater efficiency. Cost-effective upgrades are those which will save more money through energy savings than they cost to install.
A HERS rating usually costs between $100 and $300. This could be paid for by the buyer, seller, lender, or real estate agent. Sometimes the cost of the rating may be financed as part of the mortgage. No matter how the rating is paid for, it is a very good investment because an EEM could save you or your buyer hundreds of dollars each year.
|THIS IS WHY THE EEM WORKS
Energy-efficient homes cost less to own than non-efficient homes, though they may start off with higher price tags.
* Estimated mortgage payments are based upon principle and interest only, and do not include taxes and insurance. Value indicated here are for example only, and will vary from home to home.
Many homes qualify for energy upgrades.
This home qualified for $4,816 in upgrades. With the EEM, lenders recognize the savings the upgrades will bring. Borrowers may use these potential savings like extra cash, and add the cost of upgrades into the mortgage, paying them off easily as part of the monthly mortgage payment. Once the upgrades are installed the potential savings turn into real savings.
The other EEM option is for the lender to stretch debt-to-income qualifying ratios to allow a larger loan for a house that is already energy efficient. A debt-to-income ratio "stretch" means that a larger percentage of the borrower's monthly income can be applied to the monthly mortgage payment. That means the buyer has more borrowing power based up on the same income.
|THE EEM PROCESS SIMPLIFIED|
|AVAILABLE ENERGY EFFICIENT MORTGAGE LOANS
Federal Housing Administration (FHA) EEMs
The FHA Energy Efficient Mortgage covers upgrades for new and existing homes and is now available in all 50 states. Key features includes:
Loan limits may be exceeded
203(k) FHA Home Rehabilitation Loans
The FHA 203(k) program enables a home buyer or investor to obtain a single loan to finance both property acquisition and complete major improvements after the time of loan closing. Can be used in conjunction with the FHA EEM. Key features include:
Loan limits may be exceeded
Veterans Affairs (VA) EEMs
The VA Energy Efficient Mortgage is available to qualified military personnel, reservists and veterans in all 50 states for energy improvements when purchasing an existing home. Key features include:
$3,000 of upgrades may be financed based solely on documented costs
Fannie Mae and Freddie Mac EEMs
Fannie Mae secondary market guidelines permit approved lenders to increase ratio s two percent on the debt-to-income requirements for Energy Efficient Mortgages. An expanded qualifying ratio helps purchasers who are "maxed-out" on their income ratios. Freddie Mac allows a lender to use the projected utility savings as a "compensating factor."
Ask your lender about an Energy Efficient Mortgage. If they are not knowledgeable about the EEM, encourage them to learn about it, or find another lender.
Call the organizations listed on the back of this booklet. Find out how they can use the EEM to your benefit when you buy, sell, refinance or remodel your home!
|WHICH BUYERS AND HOMES ARE ELIGIBLE?
All buyers who qualify for a home loan qualify for the EEM. The EEM is intended to give the buyer additional benefits on top of their usual mortgage deal. The lender will use the energy-efficiency of the house, as determined by a HERS rating, to determine what these benefits will be.
SOME THINGS TO KEEP IN MIND
It is best to have the HERS Rating done as early in the loan process as possible. This way, the Rating can be performed while other aspects of the loan are being processed. Closing the loan should not be delayed.
You may get a larger tax deduction with the EEM because the interest on mortgage payments is tax deductible. This can save you more money than paying for energy upgrades with a credit card, bank loan, or cash, none of which are usually tax deductible.
Each house is as unique as its owner. Benefits derived from the EEM will vary from one house to another, and the benefits in the examples in this book may not apply in all cases. Your lender will be your best source of information on your own EEM benefits.
A house could be your biggest investment ever. Use the Energy Efficient Mortgage and invest wisely.
To find out how, call the organizations listed on the back cover.