THE ENERGY EFFICIENT MORTGAGE means comfort and savings. When you are buying, selling,
refinancing, or remodeling your home, you can increase your comfort and
actually save money by using the Energy Efficient Mortgage (EEM). It is
easy to use, federally recognized, and can be applied to most home mortgages.
EEMs provide the borrower with special benefits when purchasing a home that is
energy efficient, or can be made efficient through the installation of
energy-saving improvements.
Call 916-624-0880 for a free estimate on energy improvements.
Your lender will love this program.
FHA Energy Efficient Mortgages
The FHA allows lenders to add up to 100% of energy efficiency
improvements to an existing mortgage loan with certain restrictions. FHA
mortgage limits vary by county, state and the number of units in a
dwelling. See website for more details. These mortgages were previously limited to $8,000. In June 2009, HUD issued Mortgagee Letter 2009-18
which announced the removal of the dollar cap. The maximum amount of
the portion of an energy efficient mortgage allowed for energy
improvements is now the lesser of 5% of:
- The value of the property,
- 115% of the median area price of a single-family dwelling, or
- 150% of the Freddie Mac conforming loan limit
Homeowners with lower utility bills
have more money in their pocket each month. They can afford to allocate a
larger portion of their income to housing expenses. If you have more cash, why
not buy a better, more comfortable home? There are two options with the Energy
Efficient Mortgage.
The
TWO SIDES of the EEM COIN
Finance
Energy Improvements!
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Cost-effective energy-saving
measures may be financed as part of the mortgage!
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Make an older, less efficient home
more comfortable and affordable!
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Increase
Your Buying Power!
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Stretch debt-to-income qualifying
ratios on loans for energy-efficient homes!
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Qualify for a larger loan amount!
Buy a better, more energy efficient home!
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WHO
BENEFITS from the ENERGY EFFICIENT MORTGAGE?
Buyers:
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Qualify for a larger loan on a
better home!
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Get a more comfortable home NOW.
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Save money every month from Day
One.
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Increase the potential resale
value of your home.
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Sellers:
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Sell your home more quickly.
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Make your house affordable to more
people.
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Attract attention in a competitive
market.
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Remodelers/Refinancers:
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Get all the EEM benefits without
moving.
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Make improvements which will
actually save you money.
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Increase the potential resale
value of your home.
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Pay for energy improvements easily,
through your mortgage. Your lender can increase your loan to cover energy
improvement costs. Monthly mortgage payments increase slightly, but you
actually save money because your energy bills will be lower!
HERS,
or Home Energy Rating Systems
A HERS report is similar to a
miles-per-gallon rating on a car. HERS are programs which provide an evaluation
of an individual home’s energy-efficiency. A HERS report is prepared by a
trained Energy Rater. Factors such as insulation, appliance efficiencies,
window types, local climate, and utility rates are used to rate the home and
calculate energy costs.
A
HERS Report Includes:
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Overall Rating Index of the house
as it is.
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Recommended cost-effective energy
upgrades.
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Estimates of the cost, annual
savings, and useful life of upgrades.
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Improved Rating Index after the
installation of recommended upgrades.
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Estimated annual total energy cost
for the existing home before and after upgrades.
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A Rating Index is between 1 and 100.
A lower index indicates greater efficiency. Cost-effective upgrades are those
which will save more money through energy savings than they cost to install.
A HERS rating usually costs between
$300 and $800. This could be paid for by the buyer, seller, lender, or real estate
agent. Sometimes the cost of the rating may be financed as part of the
mortgage. No matter how the rating is paid for, it is a very good investment
because an EEM could save you or your buyer hundreds of dollars each year.
THIS
IS WHY the EEM WORKS
Energy-efficient homes cost less to
own than non-efficient homes, though they may start off with higher price tags.
Older Same Home with
existing
home energy improvements
Home
price $
150,000 $ 154,816
(90% mortgage, 8% interest)
Loan
amount $
135,000 $ 139,334
Monthly
payment* $ 991 $
1,023
Energy
bills + $ 186 +
$ 93
The
true monthly cost $
1,177 $ 1,116
Monthly
savings
- $ 61
Estimated mortgage payments are
based upon principle and interest only, and do not include taxes and insurance.
Value indicated here is for comparison only, and will vary from home to home.
Many homes qualify for energy
upgrades. This home qualified for $4,816 in upgrades. With the EEM, lenders
recognize the savings the upgrades will bring. Borrowers may use these
potential savings like extra cash, and add the cost of upgrades into the
mortgage, paying them off easily as part of the monthly mortgage payment. Once
the upgrades are installed the potential savings turn into real savings.
Another EEM option is for the lender
to allow higher qualifying ratios for borrowers who will occupy a property
meeting certain standards for energy efficiency. When the home has been built
or retrofitted in conformance with the International Energy Conservation Code
(IECC) standards for 2000 or later, then the lender may "stretch" the
borrower's qualifying ratios. A debt-to-income ratio "stretch" means
that a larger percentage of the borrower's monthly income can be applied to the
monthly mortgage payment. That means the buyer has more borrowing power based
up on the same income.
WHAT
the EEM DOES for a BUYER'S BORROWING POWER
For a standard home without energy improvements:
Buyer's total monthly income
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$5,000
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Maximum allowable monthly payment
29% debt-to-income ratio
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$1,450
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Maximum mortgage at 90% of
appraised home value
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$207,300
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For an energy-efficient
homes (2000 IECC)*:
Buyer's total monthly income
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$5,000
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Maximum allowable monthly payment
33% debt-to-income ratio
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$1,650
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Maximum mortgage at 90% of
appraised home value
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$235,900
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Added borrowing power due to the
Energy Efficient Mortgage: $28,600
*Interest rate 7.5%, downpayment of
10%, 30-year term, principal & interest only (tax & insurance not
factored.) Interest rates are at an all time low.
In other words:
This buyer got into a home worth
thousands of dollars more, just because it was energy efficient. That could
mean a home with more space, in a better location, or in better overall
condition.
FHA's
Energy Efficient Mortgage Program
The FHA Energy Efficient Mortgage
covers upgrades for new and existing homes and is now available in all 50
states. Key features include:
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Loan limits may be exceeded
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No re-qualifying
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No additional down payment
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No new appraisal
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The FHA 203(k) loan enables a home
buyer to obtain a single loan to finance both property acquisition and to
complete major improvements after loan closing and can be combined with FHA's
EEM.
CASE
STUDY:
Customer Quote: "The EEM was
the second best thing that ever happened to me. The first best was actually
being able to buy a home. This is our first home, and the EEM saved us a lot of
headaches because we knew what we needed to do to the house. It's nice and
comfortable now. Even my dogs are happy. I am very impressed." -Pat
Theard
First-time home buyers Patricia and
Mynette Theard purchased their home in California. It was built in 1940, and
sold for $150,000. They got an FHA loan for 95% of the value of the property.
The lender saw an opportunity for them to improve on their investment and
recommended an Energy Efficient Mortgage.
A HERS Rating on the home
recommended $2,300 in energy improvements including ceiling, floor and furnace
duct insulation, plus a setback thermostat. The lender set aside an extra
$2,300 for the improvements, bringing the total loan amount from $142,500 to
$144,800. The loan closed, the Theards moved in, and the improvements were
installed. The monthly mortgage payment increased by $17, but the Theards are
saving $45 each month through lower utility bills.
Ask your lender about an Energy
Efficient Mortgage. If they are not knowledgeable about the EEM, encourage them
to learn about it, or find another lender.
WHICH BUYERS and HOMES ARE ELIGIBLE?
All buyers who qualify for a home
loan qualify for the EEM. The EEM is intended to give the buyer additional
benefits on top of their usual mortgage deal. The lender will use the energy
efficiency of the house, as determined by a HERS rating, to determine what
these benefits will be.
Energy Efficient Mortgages can be
used on most homes. Availability is not limited by location, home price or
utility company. Your lender will help you choose which loan type is best for
you.
Get an EEM on:
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Older homes qualifying for
upgrades
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New or old homes not requiring
upgrades
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New construction
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SOME
THINGS to KEEP in MIND
It is best to have the HERS Rating
done as early in the loan process as possible. This way, the Rating can be
performed while other aspects of the loan are being processed. Closing the loan
should not be delayed. You may get a larger tax deduction with the EEM because
the interest on mortgage payments is tax deductible. This can save you more
money than paying for energy upgrades with a credit card, bank loan, or cash,
none of which are usually tax deductible.
Each house is as unique as its
owner. Benefits derived from the EEM will vary from one house to another, and
the benefits in the examples in this book may not apply in all cases. Your
lender will be your best source of information on your own EEM benefits.
CASE
STUDY:
Adding
Energy Improvements through a Home Refinance
"It's wonderful. We're just
amazed at the difference. We've hardly used the furnace all winter. The house
is much quieter too. It makes sense for everyone to do it." -Caroline
Chang
In the fall of 1995, Caroline and
Tommy Chang decided to refinance their 35-year-old home to take advantage of
lower interest rates. Their lender suggested they get a HERS Rating on the home
so they could finance energy improvements through their new mortgage deal as
well.
The lender increased the loan by
$8,760 to cover the cost of energy improvements. Their final loan amount was
$176,400, which is higher than they could have gotten without the EEM. The loan
closed and the improvements were installed. These included double-paned
windows, wall insulation, ceiling insulation, furnace duct repairs and
insulation, and a few smaller items. These improvements, combined with their
lower mortgage interest rate, mean the Changes will be saving about $230 per
month. They will be more comfortable too!
A house could be your biggest
investment ever. Use the Energy Efficient Mortgage and invest wisely.
Call 916-624-0880 for a free estimate on energy improvements.
Your lender will love this program.
We have a facilitor to assist with the paperwork.
