Not many people have heard of Energy Efficient Mortgages, or EEM, but they are an excellent way to save money on your mortgage while saving money on your energy consumption: a win-win for sure.
To start, what is an EEM?
This is a type of mortgage that is designed specifically to increase the borrower’s income based directly on the amount he or she plans to save from the energy efficient strategies used when building the house.
From the Energy Star website:
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.
To get an EEM a borrower typically has to have a home energy rater conduct a home energy rating before financing is approved. This rating verifies for the lender that the home is energy-efficient.
EEMs are typically used to purchase a new home that is already energy efficient such as an ENERGY STAR certified home. The term EEM is commonly used to refer to all types of energy mortgages including Energy Improvement Mortgages (EIMs), which 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. EIMs allow the borrower to use the money saved in utility bills to finance energy improvements. 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. EEMs (and EIMs) are sponsored by federally insured mortgage programs (FHA and VA) and the conventional secondary mortgage market. Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs.
To read more about energy efficient mortgages, see the following articles:
https://www.energystar.gov/index.cfm?c=mortgages.energy_efficient_mortgages
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/eem/energy-r
