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Energy mortgages are essentially mortgages that credit a home's energy efficiency in the home loan.
For an already energy efficient home, this could allow the borrower a greater debt-to-income ratio, thereby giving the homebuyer the ability to buy a higher quality home due to lower monthly heating and cooling costs. For homes where energy efficiency can be improved, an energy mortgage allows money saved in monthly utility bills to finance energy improvements.
A variety of energy mortgages have appeared in recent years and more are anticipated as RESNET and the Environmental Protection Agency increase education and information outreach.
Types of Energy Mortgages
Energy mortgages come in two basic categories:
- Energy efficient mortgages, which are used to finance homes that are already energy efficient.
- Energy improvement mortgages, which are used to improve the efficiency of existing homes.
Energy mortgages are sponsored by both federally insured mortgage programs (i.e., Federal Housing Administration and Veterans Administration), as well as the conventional secondary mortgage market (i.e., Fannie Mae and Freddie Mac).
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Energy Mortgage Benefits
Energy efficient homes save their owners money. They also provide a healthier and more comfortable environment in which to raise a family. Therefore, it’s no surprise that so many homeowners and homebuyers are looking at ways to either upgrade to more energy efficient homes, or incorporate energy saving features in their existing ones.
Energy mortgages provide borrowers with tangible benefits such as:
- An increase in purchasing power through cost savings
- Increased market value of homes
- Making energy efficient upgrades to existing homes affordable
Energy Mortgage Guidelines
Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) all offer special underwriting guidelines for energy mortgages. These guidelines can cover anything from how the costs of energy efficient improvements are worked into a loan to the allowable maximum mortgage limits.
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Energy Mortgage FAQs
Did you know that an energy efficient mortgage (EEM) can be used for both purchase and refinance transactions? Or that an energy rating is required for qualification for an energy mortgage?
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