-Energy Efficient Mortgages -

Many of us know that if the home is not up to code, properly insulated, has a poor air conditioning unit or heater, that it could cost you more money monthly. And keep in mind, there is a longer list of items such as lighting, appliances, etc, etc, that could reduce your expenses. Overall, there are specific types of mortgages that allow you to incorporate the costs of these upgrades into your mortgage, without coming out of pocket with extra monies. And this can be done not only with purchases, but with refinances. And to answer the question, what kind of mortgages?  This could take place with FHA loans, Conventional loans, and VA loans. But I am going to go over the particulars when using a FHA loan.

So what is the name used for this type of mortgage?  EEM, better known as Energy Efficient Mortgages. Unless you are having a new home built that could be an energy efficient home, in many cases, the older home probably won't be up to the current standards, which could cost you hundreds of dollars monthly.

My question to you.... Are you part of the GREEN family now, because not only did you save money, improve your home, but because you are helping the environment? As stated above, this can be done without added expense, except for the home energy rating report.

Realtors - How about that this is a great way for you or a seller to market their home also. Especially for those homes that are 5 years or older.

HUD states that Congress started a pilot program in 1992 demonstrating the use of energy efficient mortgages, known as EEM's. (Energy Efficient Mortgages)  FHA has adopted this into their financing options which allows a borrower to :

• save money monthly
• incorporate the improvement costs into the mortgage
• these improvements are installed after the loan closes
• this program allows you to use normal FHA guidelines with FHA mortgages
  

EEM's recognize that reduced utility expenses will allow a homeowner to pay a higher mortgage payment to cover the cost of the energy improvements that were financed into the mortgage. A main reason behind the EEM's program, it offers homeowners who couldn't initially afford the cost of these energy saving improvements out of pocket, giving them the chance to finance them. Thus cutting down on pollution and making the environment a better place to live. And why bring this up again?  For 2 reasons.

• Not everyone thinks about this or knows about these programs (and)
• because HUD just released a new mortgagee letter on June 10th, 2009. - ML 2009-18 - The old way was not to exceed $8,000 or $4,000 of improvements, whichever was greater.  Now HUD states that : The maximum amount of the portion of the EEM for energy improvements is the lesser of 5% of:

• the value of the property, or

• 115% of the median area price of a single family dwelling, or

• 150% of the conforming Freddie Mac limit.
  

So overall, HUD increased the dollar amount that is allowed, depending on which category you fall into.

Eligibility Requirements

• Properties that are eligible are One to Four unit existing and new construction properties.
• Borrowers are approved through the normal FHA mortgage guidelines for obtaining a mortgage.
• The cost of the energy-efficient improvements that may be eligible for financing into the mortgage is the lesser of 5 percent of the property's value, depending on 3 different equations. Please refer to these changes above.
• To be eligible for this mortgage, the energy efficient-improvements must be cost effective, meaning that the total cost of improvements is less than the total present value of the energy saved.
• The cost of the energy improvements and the energy savings must be determined by a home energy rating report which is done by a home energy rating system (HERS) or energy consultant. The HERS report usually costs from $150 to $350 and can be paid by the seller, the buyer, or sometimes included into the mortgage.
• The energy improvements are installed after the loan closes. The money is placed into an escrow account and is released once an inspection verifies the improvements are completed and that the savings will be achieved.
• Because of this program, the final loan amount can exceed the maximum mortgage limit by the amount of the energy-efficient improvements. Here is a list of the FHA max mortgage limits.

EXAMPLE :

Asterisk *-- MIP now varies depending on credit scores. FHA Mortgage Insurance One-Time MIP 

** -- Monthly payment does not include taxes or homeowners insurance.  Just Principal & Interest (P & I)

*** -- Mortgage interest rate is just an average, depending today's market, points, and or costs.

**** -- As you can see, it's not a huge savings, but it does add up. Just in 1 year only you saved $918.96. And the cost of the energy improvements that were added onto your mortgage now become a tax write-off.

***** -- My examples in the cost of improvements and your monthly bills, will vary depending on several different factors.... such as age of air conditioner or heating, lighting fixtures, etc, etc. And also depending on what you pay per month. I only used these figures as examples.

Along with the FHA loans for these EEMS - Energy Efficient Mortgages, the VA(Veterans Administration) and FNMA / FHLMC also back these types of programs with their own guidelines.

Department of Energy (DOE) and HUD established a joint response to energy efficient housing.

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- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

Experience & Knowledge at its BEST !!!

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For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger