Cost > EEMs: Financing for Energy-Efficient Homeowners

There are several different kinds of EEMs, though they are all designed with a common goal in mind: making it easier and for homeowners and homebuyers to undertake energy-efficient projects in their homes.

The catch for these EEMs is that, in order to qualify for them, your house must be rated for its energy usage. Obtaining the rating—which ranges from 1 to 100 and scores everything from insulation to the type of appliances you use—costs several hundred dollars. A common rating is the Home Energy Rating System (HERS). A qualified energy auditor will come to your home and conduct a thorough review. Plus, the final HERS report will suggest measures that are likely to make the biggest improvements in your home’s energy usage. To find a qualified HERS rater in your area, click here.

One final condition is that your proposed improvements must be considered “cost effective” by EEM standards. Basically, this means that the resulting monthly savings in energy bills must be greater than the added monthly costs of the EEM. Total savings over time must also be greater than the improvement’s total costs.

Now, on to the good stuff!

Conventional Energy Efficient Mortgages

Conventional EEMs are intended for buyers interested in buying an energy-efficient home. Essentially they increase purchasing power by permitting lenders to increase the borrower’s income by a dollar amount equal to the home’s estimated energy savings. Convential EEMs are offered by lenders who sell their loans to Fannie Mae or Freddie Mac. Moreover, the Fannie Mae loan is adjusted so that the value of the energy-efficient measures is reflected in the overall home value.

Federal Housing Authority EEMs

FHA EEMs exist to provide financing for homeowners who seek to implement energy-efficiency improvements. Lenders are allowed to add 100 percent of the cost of the improvements to an already-approved mortgage loan—provided that the costs don’t exceed $4,000 or five percent of the value of the home, up to $8,000, whichever is greater. Particularly important: (1) no additional down payment is required, nor do you have to re-qualify; (2) loan limits may be exceeded.

Veterans Affairs EEMs

VA EEMs are available to qualified military personnel, reservists and veterans for energy-efficiency improvements when purchasing an existing home. Up to $3,000 of the improvements may be financed solely on the basis of documented costs, while $6,000 may be financed if the upgrades are deemed “cost effective.”

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