What are “energy efficient mortgages” and how do I qualify for one?

What are “energy efficient mortgages” and how do I qualify for one?

—Matt Hoffman, Seattle, WA

A movement is afoot among real estate lenders to offer special mortgages and other incentives designed to reward energy efficiency and green-friendly building and restoration. Borrowers planning to purchase new energy efficient homes, as well as those looking to do ecologically motivated renovations on older homes, can take advantage of such programs to increase their mortgage amounts while offsetting construction costs.

Fannie Mae, the Congressionally chartered company that works with lenders to back mortgages for low and moderate income Americans, is the prime mover of “green” mortgages through its Energy Efficient Mortgage (EEM) program. To qualify for the program, homeowners must either buy a new energy efficient home, or commit to upgrades of an existing home as recommended by an inspector certified through the Home Energy Rating System (HERS).

Such HERS inspections can run as much as $400, but the projected savings from energy efficiency are considered part of the borrower’s income and can help homebuyers qualify for larger mortgages. By increasing borrowing power, the EEM allows homeowners to fold the costs of energy efficiency into the total mortgage amount. Factors such as window efficiency, heating and cooling system efficiency, wall-to-window ratios, insulation levels and local climate—even the solar orientation of the home—determine a home’s HERS rating.

In a home that needs energy improvements, the HERS report will suggest specific improvements and estimate both the cost of the improvements and the expected energy savings. The cost of the energy improvements can be included in the homeowner’s mortgage, but is limited to 15 percent of the home’s value.

A borrower opting for new construction can qualify for an EEM if the home in question is to be built according to guidelines set by the Energy Star Builder Option Program, a project of the Environmental Protection Agency to encourage energy efficient building and design. Once construction on the new home is complete, a HERS inspection is conducted to determine the home’s energy efficiency, which will in turn dictate the specific terms of the EEM.

Eligible borrowers can obtain an EEM backed by Fannie Mae with as little as a three percent down payment. Detailed requirements for EEM qualification are available on the Fannie Mae website, which also posts a list of participating lending institutions from coast-to-coast.

CONTACT: Fannie Mae, www.efanniemae.com.

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