Energy Efficient Mortgages (EEM)
Today, people are constantly looking for green options to protect the environment and save money on energy costs. This can include changing from old lightbulbs with CFLs or wasteful old heating and cooling systems in your home. But did you know that your mortgage can be used to help make your house greener? An Energy Efficient Mortgage, or EEM, allows you to make changes such as adding solar panels, for energy efficiency in your home.
What is an EEM?
Regardless of whether you’re looking to purchase a new home or refinance your current one, EEMs are available to include the cost of green energy improvements into the body of your loan. After your loan is approved, an escrow account will be set up specifically for the cost of your energy improvements. The cost of any improvements will be pulled from this escrow account as they are made. The process for an EEM loan is similar to other FHA loans. Additionally, for a refinance, the cost of the home modifications can exceed the amount of equity you have in your home since it is assumed the cost of adding solar panels or other such improvements will increase the property’s value. For an FHA loan, a 3.5% down payment is expected and will be the same for an EEM loan.
As part of qualifying for an EEM, an energy consultant or home energy rating system must be used to evaluate the home and any necessary or potential energy improvements. This report determines the amount of money the lender should offer for the EEM loan and is determined by the cost of adding solar panels, weather stripping, or adding double-paned windows, among other upgrades. After the evaluation has been made and approved, the lender will roll the costs into the total amount of the loan. You will not have to make any additional payments for the improvements. Instead, they will be included in the property’s principle.
Benefits of an Energy Efficient Mortgage
For refinances, the big benefit can be that you not only improve your energy expenses and lower your monthly costs, but you can also lock in a historically low interest rate. This will lower your monthly mortgage payment even further. For new homeowners, it allows you to take advantage of these historically low rates while starting off with a more efficient home. Even with the increased costs from improvements added to your loan, the amount of money saved will often offset your costs. This can be undoubtedly true if you are locking into a lower interest rate.
An EEM gives you an easy and pain-free way to finance green projects without having to scrimp and save for the project. It also helps make your home more energy efficient, saving you money in the long run and improving the overall value of your home.
To see if you qualify for an Energy Efficient Mortgage, fill out our quick 1-minute form to have a Mortgage Advisor contact you.