Energy Efficient Mortgage Programs help current homeowners make energy efficient changes. They also help homebuyers increase their purchase power by buying an energy efficient home. In order to qualify for an EEM, you’ll need a home energy rater to rate the home for energy efficiency. The rater will determine which changes will affect the home and an approximate value for the changes. The savings is what the lender uses to determine your eligibility for the extra loan on top of your regular mortgage.
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There are three types of EEMs – conventional, FHA, and VA.
Conventional Energy Efficient Mortgage
Fannie Mae offers an EEM program. In this program, they add the monthly savings you would gain with the energy efficient changes to your monthly income. This lowers your debt ratio and gives you more purchasing power to buy an energy efficient home or make changes to your existing home.
Fannie Mae’s EEM is called the HomeStyle Energy program. It gives borrowers up to 15% of the future appraised value, after the energy efficient changes, for energy improvements. This means, for example, if an appraiser determines your home would be worth $250,000 after energy efficient improvements, you could borrow up to $37,500 for the changes. The HomeStyle program can be added to any Fannie Mae product available today.
FHA Energy Efficient Mortgage
The FHA also allows the addition of energy efficient changes to your home. The FHA determines the maximum amount allowed a little differently though. You’ll need to determine the lesser of:
- 5% of the property’s value
- 5% of the FHA loan limit in your county
- 150% of (5% of the conforming limit which is $424,100 right now)
Here’s an example.
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Let’s say your home is worth $300,000 and the loan limit in your area is $350,000. You’d figure the following:
- $300,000 x .05 = $15,000
- $350,000 x .05 = $17,500
- $424,100 x .05 = $21,205 x 1.5 = $31,807
You would be able to finance $15,000 in energy improvements with the FHA loan. However, any changes you make must save you more than they cost. This is what the energy auditor is for – he can tell you which changes will make the greatest difference, allowing you to stay within the FHA guidelines.
VA Energy Efficient Mortgage
If you have a VA loan or are eligible for one, you may also be able to make energy efficient changes. The VA allows borrowers to add up to $6,000 in energy efficient improvements in their home. Borrowers are able to do this even before they close on the home. Of course, just like FHA loans, though, the savings must outweigh the costs.
Any improvements that cost more than $3,000, but less than $6,000 require the lender to make sure the savings equal or are greater than the increase in the mortgage payment. If the savings are less than the increase in the mortgage payment, the changes would not be allowed.
In some cases, you may be able to go over $6,000 in energy efficient changes, but only with approval. The lender must be 100% sure that the cost of the changes is completely offset by the savings. The lender must also ensure that you qualify for the higher payment and that you meet all VA guidelines as a result.
Making energy efficient changes to a home can be a great way to decrease your footprint on the environment and save money. Your utility bills should decrease as a result of the changes and the savings should be greater than the increase in your mortgage.
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