If your home is not energy efficient, you could be throwing money away each month. You may have looked into the cost of making these changes and figured you could not afford it. Maybe you did not want to take out another mortgage on the home. The Energy Efficiency Mortgage makes it possible to make energy efficient renovations without taking out a second mortgage. This program allows you to add the borrowed funds right onto your existing mortgage. This way you pay one payment and have lower utility bills.
Obtaining a Home Energy Assessment
The first step is to secure a home energy assessment. This report will show you and the lender the important information needed to figure out if the changes are worth it. The report shows:
- The recommended changes to decrease the energy usage in the home
- How much money you will save each month by making the changes
- How much it may cost to make each change
This report then helps lenders understand how much money you need on top of your original mortgage to make the changes. The lender will also determine if savings you obtain by making the changes outweigh the cost of making the changes. At the very least, you have to save at least as much as the changes cost in order to get approved.
Keep in mind, the report costs money; typically anywhere between $200 and $800. In some cases, you may be able to roll the cost of the report into your loan. The report will give you different types of advice including the types of upgrades you can choose from and how long the upgrades will last. This will help you determine if they are the right changes to make. The energy rater may even be able to provide you with recommendations for reputable contractors to do the job.
How the Loan for Energy Efficient Renovations Works
Once you know the changes you should make, you must find a lender. It helps to use a lender who is familiar with the process. The lender will need to fill out extra paperwork and hold an escrow account with the extra funds. The lender does not pay out the funds until the work is done and the lender’s representative inspects it. This way both you and the lender are protected against contractors who take the money and run. Shopping around for lenders that have used the program before usually results in the best outcome as they are the lenders who know what to do and how to get around any hiccups.
Benefits of the EEM
There are many benefits you may realize from the Energy Efficient Mortgage. Some are obvious, while others often get overlooked:
- Save money on your utilities. This is the obvious benefit of the program. You save money on your heating and cooling bills by adding weatherization, more efficient windows and doors, or installing new utilities that are more efficient.
- Secure more tax deductions. There are several ways you can save on your taxes with energy efficient changes. You can deduct the interest you pay on the mortgage, which will be higher because you took out a higher loan amount. You may also get other tax deductions because of the energy efficient changes you made.
- You save money on the wear and tear on your utilities, which saves you money in the long run.
Use Any Loan Program
You do not have to use a specific loan program to use an Energy Efficient Mortgage. All government-backed and conventional loans allow the use of EEM. You must let the lender know at the onset of the refinance that you wish to use the EEM option. Once you let the lender know, you can secure the home energy assessment. This lets the lender know how much more money you need on top of your refinance. Generally, lenders can stretch the debt ratio guidelines in order to allow the energy efficient renovations to take place. Just how much you can borrow depends on the lender and the loan program you use as each one has its own guidelines.
If you wish to make energy efficient renovations to your home, consider the EEM. It allows you to make changes without disrupting your finances tremendously. The increase in your mortgage payment is often offset by the monthly savings you realize with the energy efficiency. Even if you do not see a change right away, you will likely reap the savings in the near future. Talk to your energy assessment advisor to see which changes would give you the greatest results.
