What is an Energy Mortgage?

Energy efficiency is at the top of the priority list of today's home buyer and mortgage lenders across the nation are increasingly using energy mortgages to make homes more affordable.

Energy mortgages allow borrowers to finance energy-saving measures as part of their mortgage without paying more than they would for a typical mortgage. Many participating lenders offer additional financial benefits beyond the value of home energy savings, such as discounted mortgage rates, reduced loan fees and closing costs assistance.Types of Energy Mortgages

There are basically two types of energy mortgages available - Energy efficiency mortgages (EEM) and energy improvement mortgages (EIM).

• Energy Efficiency Mortgage (EEM) - used to purchase a new construction home that has already been rated energy-efficient such as an ENEREGY STAR qualified home. For a new home to qualify, it must have a building performance audit and meet strict guidelines for energy efficiency set by the U.S. Environmental Protection Agency. A home energy rating (HERS) is recognized in the mortgage industry and quantifies the energy efficiency of a new home. A HERS involves an analysis of a home's construction plans and on site inspections by an energy rater to ensure the house will meet ENERGY STAR performance guidelines.
  
• Energy Improvement Mortgage (EIM) - includes the cost of home energy efficiency upgrades in the loan itself so that borrowers can pay for those energy upgrades over the life of their loan as well as deduct the interest from their federal and state income taxes. Borrowers are able to lower their home's energy consumption while making significant, affordable home improvements. Obtaining an EIM typically requires a professional home energy auditto determine where and how energy is being lost, what systems are not performing efficiently and what cost-effective improvements can be done to make a home more energy-efficient.

  Energy mortgages are sponsored by federally insured mortgage programs.
  

• Conventional Energy Mortgages - can be offered by lenders who sell their loans to Freddie Mac or Fannie Mae.
• FHA Energy Mortgages - allow lenders to add 100% of the 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).
• VA Energy Mortgages - are available to qualified military personnel, reservists and veterans for home energy upgrades when purchasing an existing home, capping upgrades at $3,000 - $6,000.

  Energy Mortgages are good for lenders, borrowers, builders, homeowners and the environment.