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Improve Your Home with an Energy Efficient Mortgage.

Energy Efficient Mortgages are federal government recognized sources of financing that allow households the ability to pay for energy efficiency as well as conservation measures. The EEM mortgage or home loan will allow the borrower to take out more money to pay for home updates.

Are you planning to get a new mortgage or refinance your existing one? Or do you want to update your home or improve it using funds from a new or second mortgage, or refinancing a home loan? If so, why not use this opportunity to improve your home with an energy efficient mortgage. The big advantage is you can borrow more money on the loan to pay for the cost of effective energy improvements.

Use EEM mortgages to save money on utility bills

This is a home loan offered by most lenders and supported by Fannie Mae, Freddie Mac, and HUD. An energy efficient mortgage, or EEM, can be added to your regular one to make your home more comfortable and save on energy bills. The terms and conditions of these EEM home loans will also allow the lender or bank that originates the funds to increase the borrower's income for that person applying, which in effect pays out more cash by a dollar amount equal to the estimated energy savings.

For home buyers, this is a chance to make energy efficient improvements or take advantage of improvements already in place in the house you are buying. Use an EEM mortgage to pay for a wide variety of home updates, all of which will help your home become more energy efficient which will help you save money on utility bills over the years and of course which is great for the environment. Those planning to renovate or sell their home can include energy-saving features to increase the value of their homes.  Their homes also become more comfortable and affordable to live in. Homeowners refinancing a home loan can also use an Energy Efficient Mortgage to pay for energy conservation, repairs, and weatherization measures at the time of the refi.

How Energy Efficient Mortgages work

Energy efficient mortgages (EEMs), also called energy improvement mortgages (EIMs) or green mortgages are offered by various banks and lenders. They are available as conventional loans that are purchased by Fannie Mae and Freddie Mac. This means that both national and local lenders will offer them, including Quicken, Wells Fargo, Bank of America, and others.




The Federal Housing Authority (FHA) and the U.S. Department of Veteran Affairs (VA) also offer energy efficient mortgages. So veterans and lower income borrowers can also access the funds. The Energy Star program of the U.S. Environmental Protection Agency also has a partnership with private lenders to promote EEMs.

There is no need to qualify separately for an EEM. If you qualify for a home mortgage, the EEM can be added to it. You get a larger loan with no increase in the down payment. The debt to income ratio of the loan is increased in recognition of the expected energy savings. The debt includes the investment in energy upgrades. This in effect means the mortgage will pay for those home improvements.

The bank or lender, as well as Fannie Mae or Freddie Mac, require proof that the planned improvements are cost effective. This means that the expected savings in energy are equal to or more than the investment in energy upgrades.

The lender requires a home energy rating systems report prepared by a qualified energy rater to evaluate an EEM. This report sets out the expected monthly savings in utility costs and energy usage, recommendations on the types of upgrades, estimates of the life of upgrades, the existing energy score and the expected score upon completion.  Whether you plan to purchase a new home such as an Energy Star certified home or purchase a fixer-upper, the EEM is based on the expected savings from energy-efficient upgrades.

If you intend to remodel your existing home to include energy-saving improvements, refinancing with an EEM may prove a better investment as the interest paid on mortgage interest is tax-deductible. This means you can refinance a home loan, and get a lower interest rate or different term, while at the same time as paying for energy conservation measures. In a perfect world you home loan payment goes down and utility bills when you use an Energy Efficient Mortgage for refinancing. Paying for your remodel with a credit card or cash would not give these savings.





What Improvements are funded with an EEM?

Improvements that help to save energy or conserve scarce resources are funded with an EEM. The list of wide ranging. As noted, the great part is that these updates will save the homeowner money over the long term from lower heating, utility, and electric bills. Here are some examples:

  • Dual pane windows
  • Insulation for walls, floors and attic
  • Caulking
  • Geothermal systems that use mother nature for power
  • Efficient heating and cooling systems
  • New ducting or repairs to existing systems
  • Energy-efficient roofs or repairs to an existing one
  • Energy efficient appliances as well as WaterSense updates
  • Weatherization improvements. The mortgage can pay for these updates, but there are also weatherization programs for low income families.

Banks and lenders that issue EEM mortgages can provide more guidelines. When applying for this type of home loan (either to buy or refinance), almost any single improvement that leads to a more efficient home can be paid for.

What is the maximum loan limit for an EEM?

This amount varies with the type of loan as well as caps that lenders have in place for different categories.  For instance, Fannie Mae allows loans up to 15% of the "as completed" appraised home value to fund energy-saving improvements under a refinance or for a new purchase. Fannie Mae also funds up to 5% of the appraised value for an Energy Star rated home and permits lenders to increase the debt to income ratio for the mortgage by 2% to enable borrowers to qualify for larger loans. Limited cash-out refinances are also offered to pay off debt incurred to improve a home's water or energy efficiency.

Similarly, lenders follow requirements set out by Freddie Mac for mortgages to fund energy-saving home improvements. This means that Bank of America, Wells Fargo, and other lenders have guidelines in place. The FHA and VA have their own guidelines on loan limits.

What are other noteworthy features of EEMs?

The Department of Housing and Urban Development gives you 90 days to complete work on energy improvements per the list above. However, most banks or lenders require this to be completed within two to four weeks. However the timeframe can be negotiated. Check with your lender or the company you are applying at..

Therefore it is best to get the home energy rating completed early in the loan assessment process and place orders with contractors to meet this deadline. Especially for more time consuming updates, such as a roof or HVAC system.





Lenders are required to set up escrow accounts to administer an EEM. The federal government requires this. You have to both save as well as submit receipts for amounts spent on energy-efficient upgrades to the lender that issued the energy efficient mortgage. Some lenders agree to include the cost of the home energy rating report in the closing costs.

An energy-efficient home offers benefits of living in a healthier and more comfortable home while saving on energy bills. It is also great for the environment and global warming. Whether you are moving to another home or remodeling your existing one to get these benefits, an energy efficient mortgage is a good solution to meet your funding needs.


By Jon McNamara


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