Bottom Line: The federal government makes it easy for homeowner’s to make energy improvements to their homes through energy efficient mortgages.

What is an Energy Efficient Mortgage?

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.

EEMs are typically used to purchase a new home that is already energy efficient such as an ENERGY STAR qualified home. Similar to EEMs, Energy Improvement Mortgages (EIMs) 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. 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.

There are a number of variations of EEMs and EIMs. A few of them are discussed below.

• Conventional Energy Efficient Mortgages: Allow you to increase the size of your mortgage by taking into account future energy savings of the home being financed.
• FHA Energy Efficient Mortgages: FHA EEMs allow lenders to add 100 percent of the additional cost of cost-effective energy efficiency improvements to an already approved mortgage loan up to a maximum of $8,000, or five percent of the value of the home, whichever is greater.
• VA Energy Efficient Mortgages: Similar to the FHA EEMs, but for qualified military personnel and veterans.
• ENERGY STAR Mortgages: Similar to the FHA Energy Efficient mortgages, except with Energy Star mortgages, the energy savings are certified by a network of energy auditors and contractors from the Energy Star program.

Submitted by David Crabbe, San Carlos

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