Do you know what an energy efficient mortgage is?

Do you know what an energy efficient mortgage is?

Perhaps you've been at a closing and heard the attorney mention this odd form the buyer had to sign....or heard a mortgage rep mention this program before. If you are showing a home that is need of new windows, or has an outdated or old furnace or Central A/C unit for example, then you may want to know about these options for the buyer's loan.  A buyer can add the cost of the replacement items to the loan, without affecting the qualifying ratios.  This allows the buyer to stick with a low down payment of as little as 3.5% for FHA or ZERO for VA loans and be able to buy the home and finance the cost of adding the energy efficient items.  This works for new homes as well, if they have Energy Star rated appliances & HVAC equipment. In some cases this can be used to help someone qualify!

If you'd like to learn more, there is an upcoming FHA Energy Efficient Mortgage Webinar:

 July 19, 2011  - Webinar: FHA Energy Efficient Mortgage (EEM). This Webinar explains how to obtain the "present value of the energy saved." This training course provides real estate professionals, housing counselors, and lenders with an overview of the EEM process. Registration required, no fee. All times are Mountain Time. More info at: http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=966&update=N

Energy Efficient Mortgages

An Energy Efficient Mortgage (EEM) is a mortgage that credits a home's energy efficiency in the mortgage itself. EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.

To get an EEM a borrower typically has to have a home energy rater conduct a home energy rating before financing is approved. This rating verifies for the lender that the home is energy-efficient. This is usually a HERS report, performed by a qualified inspector.

What is HERS Rating?

A home energy rating involves an analysis of a home's construction plans and onsite inspections. Based on the home's plans, the Home Energy Rater uses an energy efficiency software package to perform an energy analysis of the home's design. This analysis yields a projected, pre-construction HERS Index. Upon completion of the plan review, the rater will work with the builder to identify the energy efficiency improvements needed to ensure the house will meet ENERGY STAR performance guidelines. The rater then conducts onsite inspections, typically including a blower door test (to test the leakiness of the house) and a duct test (to test the leakiness of the ducts). Results of these tests, along with inputs derived from the plan review, are used to generate the HERS Index score for the home

EEMs are typically used to purchase a new home that is already energy efficient such as an ENERGY STAR qualified home. The term EEM is commonly used to refer to all types of energy mortgages including Energy Improvement Mortgages (EIMs), which are used to purchase existing homes that will have energy efficiency improvements made to them. EIMs allow borrowers to include the cost of energy-efficiency improvements to an existing home in the mortgage without increasing the down payment. EIMs allow the borrower to use the money saved in utility bills to finance energy improvements. Both EEMs and EIMs typically require a home energy rating to provide the lender with the estimated monthly energy savings and the value of the energy efficiency measures - known as the Energy Savings Value. EEMs (and EIMs) are sponsored by federally insured mortgage programs (FHA and VA) and the conventional secondary mortgage market (Fannie Mae and Freddie Mac). Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs.

FHA Energy Efficient Mortgages

The mortgage loan amount for an FHA EEM can be increased by the cost of effective energy improvements. The maximum amount of the portion of the EEM for energy efficient 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.

For more information on FHA EEM loan limits refer to FHA Mortgagee Letter 2009-18 . No additional down payment is required, and the FHA loan limits won't interfere with the process of obtaining the EEM. FHA EEMs are available for site-built as well as for manufactured homes. Applications for an FHA EEM may be submitted to the local HUD Field Office through an FHA-approved lending institution, such as Freedom Mortgage. Information about the FHA EEM can be found on FHA's web site. Additional information is available from HUD's Office of Single Family Housing by calling (800) 569-4287. There is also a fact sheet about FHA's EEM (70KB). The Systems Building Research Alliance has information about FHA EEMs for ENERGY STAR qualified manufactured homes. The EEM can also be combined with the FHA 203k loan.

VA Energy Efficient Mortgages

The Veteran's Administration (VA) EEM is available to qualified military personnel, reservists and veterans for energy improvements when purchasing an existing home. The VA EEM caps energy improvements at $3,000-$6,000. Borrowers should ask their lender about a VA EEM at the beginning of the lending process. More information about VA EEMs can be obtained from the Web site for the U.S. Department of Veteran's Affairs or by calling (800) 827-1000. Chapter 7 of VA Pamphlet 26-7 (Revised) (1.5MB) contains lender guidance on the VA EEM.

To learn more about EEMs contact Jeff Coon at Freedom Mortgage at jeff.coon@freedommortgage.com (732) 938-2252 x303.

Additional information about writing energy-efficient mortgages can be found on the Web sites for the U.S. Department of Housing and Urban Development (HUD) and the Residential Energy Services Network (RESNET).