Are Energy Efficient Mortgages a Good Idea?

An energy efficient mortgage is easy to use, federally recognized and can be applied to most home mortgages—plus it is available whether you are buying, selling, refinancing or remodeling your home. Homeowners with lower utility bills will have more money in their pockets each month and can even afford to allocate a larger portion of their income to housing expenses.

Additionally, the money can be used to finance energy improvements to make an older home more efficient, comfortable and affordable, which increases the potential resale of the home.

A laundry list of upgrades includes replacing windows or doors, installing solar technologies or replacing older heating systems, cooling systems and lighting with a more environmentally friendly solution.

For people buying a home who want to take advantage of the program, the FHA requires that you make at least a 3.5 percent cash investment on the property based on the sale price, and all work must begin within 90 days of closing. The total amount of your mortgage is based on the value of your home plus the projected cost of energy-efficient improvements.

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.

Benefits derived from the EEM will vary from one house to another and your lender will be your best source of information on what EEM benefits you may obtain.