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Energy Efficient Mortgage
Home Owner Guide

{short description of image} Buying
{short description of image} Selling
{short description of image} Refinancing
{short description of image} Remodeling
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Home Loans
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Department of


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.


{short description of image} Qualify for a larger loan on a better home!
{short description of image} Get a more comfortable home NOW.
{short description of image} Save money every month from Day One.
{short description of image} Increase the potential resale value of your home.

{short description of image} Sell your home more quickly.
{short description of image} Make your house affordable to more people.
{short description of image} Attract attention in a competitive market.

{short description of image} Get all the EEM benefits without moving.
{short description of image} Make improvements which will actually save you money.
{short description of image} Increase the potential resale value of your home.

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!

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An EEM can only be done if an official home energy rating, or HERS Report, indicates that it will save you money.


Finance energy improvements!

{short description of image} Cost-effective energy-saving measures may be financed as part of the mortgage!

{short description of image} Make an older, less efficient home more comfortable and affordable!

{Graph image} Increase your buying power!

{short description of image} Stretch debt-to-income qualifying ratios on loans for energy-efficient homes!

{short description of image} 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.

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A HERS Report includes:

{short description of image} Overall Rating Score of the house as it is.
{short description of image} Recommended cost-effective energy upgrades.
{short description of image} Estimates of the cost, annual savings, and useful life of upgrades.
{short description of image} Improved Rating Score after the installation of recommended upgrades.
{short description of image} Estimated annual total energy cost for the existing home before and after upgrades.

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.


Energy-efficient homes cost less to own than non-efficient homes, though they may start off with higher price tags.

existing home
Same Home
with energy
Home price
(90% mortgage, 8% interest)
$150,000 $154,816
Loan amount $ 135,000 $139,334
Monthly payment* $991 $1023
Energy bills +$ 186 +$ 93
The true monthly
cost of home ownership
$ 1,177 $ 1,116
Monthly savings - $ 61

* 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.


For a standard home without energy improvements:

Buyer's total monthly income

$3,000 $5,000
Maximum allowable monthly
payment 28% debt-to-income ratio:

$840 $1,400
Maximum mortgage at
90% of appraised home value:

For an energy-efficient home:

Buyer's total monthly income

$3,000 $5,000
Maximum allowable monthly payment
30% debt-to-income ratio:

$900 $1,500
Maximum mortgage at 90% of appraised home value:

Added Borrowing Power Due
to the Energy Efficient Mortgage:
Mortgage Rate of 7.5% · Down Payment of 10% · 30 Year Term Principal & Interest Only · Tax & Insurance Not Factored
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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:


{short description of image} Loan limits may be exceeded
{short description of image} No re-qualifying
{short description of image} No additional down payment
{short description of image} No new appraisal
{short description of image} $4,000 or 5% of the property value (up to $8,000) may be financed


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:


{short description of image} Loan limits may be exceeded
{short description of image} Total cost of improvements must exceed $5,000


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:


{short description of image} $3,000 of upgrades may be financed based solely on documented costs
{short description of image} Up to $6,000 may be financed if upgrades are deemed cost effective


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."

Case Study:


"The EEM was the second best thing that ever happened to me. The first best was actually being able to buy a home. This is our first home, and the EEM saved us a lot of headaches because we knew what we needed to do to the house. It's nice and comfortable now. Even my dogs are happy. I am very impressed."
- Pat Theard
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First-time home buyers Patricia and Mynette Theard purchased their home in California. It was built in 1940, and sold for $150,000. They got an FHA loan for 95% of the value of the property. The lender saw an opportunity for them to improve on their investment and recommended an Energy Efficient Mortgage.


A HERS Rating on the home recommended $2,300 in energy improvements including ceiling, floor and furnace duct insulation, plus a setback thermostat. The lender set aside an extra $2,300 for the improvements, bringing the total loan amount from $142,500 to $144,800. The loan closed, the Theards moved in, and the improvements were installed. The monthly mortgage payment increased by $17, but the Theards are saving $45 each month through lower utility bills.

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!


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.

Energy Efficient Mortgages can be done on most homes. Availability is not limited by location, home price or utility company. EEMs can be done on government (FHA and VA) conventional, Portfolio and Jumbo Loans. Your lender will help you choose which loan type is best for you.

Get an EEM on:

{short description of image} Older homes qualifying for upgrades
{short description of image} New or old homes not requiring upgrades
{short description of image} New construction



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.

Case Study:


"It's wonderful. We're just amazed at the difference. WeÕve hardly used the furnace all winter. The house is much quieter too. It makes sense for everyone to do it."
- Caroline Chang
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In the fall of 1995, Caroline and Tommy Chang decided to refinance their 35-year-old home to take advantage of lower interest rates. Their lender suggested they get a HERS Rating on the home so they could finance energy improvements through their new mortgage deal as well.


The lender increased the loan by $8,760 to cover the cost of energy improvements. Their final loan amount was $176,400, which is higher than they could have gotten with out the EEM. The loan closed and the improvements were installed. These included double-paned windows, wall insulation, ceiling insulation, furnace duct repairs and insulation, and a few smaller items. These improvements, combined with their lower mortgage interest rate, mean the Changs will be saving about $230 per month. They will be more comfortable too!

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.

Disclaimer Statement
Pacific Gas and Electric Company and the Department of Energy do not endorse nor imply endorsement of any product, service, individual or company mentioned and/or involved in this publication. Anyone undertaking to rely on particular details contained herein shall do so at his/her own risk and should independently use and/or verify their applicability to a given situation.
U.S. Department of Energy funds were not used for the printing of this four-color brochure.
Pacific Gas and Electric Company, 1996, all rights reserved.