Energy Efficient Mortgages

What Makes an Energy Efficient Mortgage Different?
Under the Federal Housing Administration (FHA), the Energy Efficient Mortgage, (EEM) or Energy Improvement Mortgage (EIM) a borrower can finance into the mortgage 100% of the cost of eligible energy efficient improvements, subject to certain dollar limitations, without an appraisal of the energy improvements and without further credit qualifications of the borrower. To be eligible for inclusion into the mortgage, the energy efficient improvements must be “cost effective” i.e., the total cost of the improvements (including maintenance costs) must be less than the total present value of the energy saved over the useful life of the improvements. The cost of any improvement to the property that will increase the property’s energy efficiency and that is determined to be “cost effective” is eligible for finance into the mortgage an its cost may be added to the mortgage amount.

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.

Finance Energy Improvements

Cost-effective energy-saving measures may be financed as part of the mortgage.
Make an older, less efficient home more comfortable and affordable.

Benefits
A home – energy rating determines that value of the energy-saving features and the estimated monthly savings. The savings are considered income to the borrower, which improved the debt-to-income qualifying ratios, and the home’s value is increased by the value of the energy-saving enhancements. Paying for the improvements over the life of the loan frees up the borrower’s cash for closing or moving costs.

How is the possible?
The Energy Efficient Mortgage (EEM) or Energy Improvement Mortgage (EIM) from Citywide Home Loans is based on an existing Federal Housing Administration (FHA) loan program. This loan program was created as an important tool for community revitalization and for expanding homeownership opportunities. Any improvement that contributes to the overall energy efficiency of the home, qualify for eligibility. These improvements include, energy-efficient windows, doors, appliances, insulation. A Home Energy Rating System or HERS report will indentify what improvements can be made to increase the overall comfort of the home either for a purchase or refinance.

Eligibility
Eligible Borrowers must meet FHA income guidelines or be within a federally declared disaster zone. Eligible properties are existing or new-construction singe family dwellings or a property that contains no more than four housing units, one of which the owner occupies. Borrowers must meet income requirements for FHA’s standard 203(b) insurance and also have the ability to make monthly mortgage payments.

Costs
The cost of the energy improvements must be the lesser of either the actual cost of the improvements, plus the costs of the report and inspections, or the lesser of 5 percent of one of these three parameters:

The property’s value
115% of the median price of a home for the area
150% of the Fannie Mae/Freddie Mac conforming loan limit, determined by individual counties

HERS Report
A HERS report (Home Energy Rating System) is similar to a miles-per-gallon rating on a car. HERS are programs which provide evaluations of an individual home’s energy-efficiency. A HERS report is prepared by a trained Energy Rate Factors such as insulation, appliance efficiencies, window types, local climate, and utility rates are used to rate the home and calculate the costs. A HERS Report includes the following:

Overall Rating Index of the house as it is.
Recommended cost-effective energy upgrades.
Estimates of the cost, annual savings, and useful life of the upgrades.
Improved Rating Index after the installation of recommended upgrades.
Estimated annual total energy cost fo the existing home before and after upgrades.

A Rating Index is between 1 and 100. A lower index indicates great 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 report can 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 hundreds of dollars each year.

Call 877-475-2407 to speak to a Citywide Home Loans, Home Renovation Program expert or GET A QUOTE today!

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