“Energy Efficient Mortgages,” also known as EEMs, make it easier for borrowers to qualify for loans to purchase homes with specific energy-efficiency improvements.

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 normally used to purchase a new home. EEMs are sometimes confused with Energy Improvement Mortgages (EIMs), which are used for existing homes and allow borrowers to include the cost of energy-efficiency improvements in the mortgage without increasing the down payment.

EEMs (and EIMs) are sponsored by federally insured mortgage programs (FHA and VA) and the conventional secondary mortgage market (Fannie Mae and Freddie Mac) Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs.

Conventional Energy Efficient Mortgages

Conventional EEMs can be offered by lenders who sell their loans to Fannie Mae and Freddie Mac. Conventional EEMs increase the purchasing power of buying an energy efficient home by allowing the lender to increase the borrower’s income by a dollar amount equal to the estimated energy savings. The Fannie Mae loan also adjusts the value of the home to reflect the value of the energy efficiency measures.

FHA Energy Efficient Mortgages

FHA EEMs allow lenders to add 100 percent of the additional cost of cost-effective energy efficiency improvements to an already approved mortgage loan (as long as the additional costs do not exceed $4000 or 5 percent of the value of the home, up to a maximum of $8000, whichever is greater). No additional down payment is required, and the FHA loan limits won’t interfere with the process of obtaining the EEM. FHA EEMs are available for site-built as well as for manufactured homes. Applications for an FHA EEM must be submitted to the local HUD Field Office through an FHA-approved lending institution. HUD has a searchable list of approved lenders . Additional information is available from HUD's Office of Single Family Housing by calling (800) 569-4287. The Manufactured Housing Research Alliance Web site  has information about FHA EEMs for ENERGY STAR qualified manufactured homes.

VA Energy Efficient Mortgages

The Veteran’s Administration (VA) EEM is available to qualified military personnel, reservists and veterans for energy improvements when purchasing an existing home. The VA EEM caps energy improvements at $3,000–$6,000. Borrowers should ask their lender about a VA EEM at the beginning of the lending process. More information about VA EEMs can be obtained from the Web site for the U.S. Department of Veteran's Affairs or by calling (800) 827-1000.

To learn more about EEMs contact Fannie Mae, Freddie Mac, the FHA or the VA. Additional information about writing energy-efficient mortgages can be found on the Web sites for the U.S. Department of Housing and Urban Development (HUD)  and the Residential Energy Services Network (RESNET)

Source: EnergyStar

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