What is an Energy Efficient Mortgage?

An Energy Efficient Mortgage (EEM) is a federally recognized mortgage that makes it more affordable to buy energy-efficient homes or to make existing homes more energy efficient.

Because of the lower cost of running an energy-efficient home, an EEM enables you to obtain a larger mortgage. Lower utility bills allow people to allocate a larger portion of their monthly income toward their mortgage payment.

Buying a home.
An Energy Efficient Mortgage can be used to purchase a new home (either existing or new construction). Essentially, the EEM credits the energy savings of a home into the home loan. This allows the buyer to purchase a more expensive home than s/he may have qualified for otherwise. The lower energy costs usually translate into the buyer qualifying for 2 percent more debt than before, granting the borrowing a greater debt-to-income ratio than before.

Improving an existing home.
Another option for an Energy Efficient Mortgage is to make energy-saving improvements to your existing home. By refinancing to an Energy Efficient Mortgage, you can include cost-saving upgrades into the loan. The mortgage payment may go up somewhat, but after the upgrades the utility payments should go down even more, therefore making more money available to the buyer for the mortgage.

How to get an Energy Efficient Mortgage.
In order to obtain an Energy Efficient Mortgage, the first step is to have a Home Energy Rating Systems report (HERS) done. This step is mandatory. A HERS report tells you the energy efficiency of a home. In a HERS evaluation, several factors are examined:
the home’s insulation.

  • the efficiency of the appliances.
  • the types of windows
  • the local climate.
  • the utility rates.

A trained Energy Rater conducts the HERS report which includes the home’s overall rating, recommended upgrades, the improved rating score after upgrades, and the estimated total energy used before and after upgrades. The lender then uses the report to make decisions about the mortgage for which you qualify.

The Energy Efficient Mortgage can be a very good option. But first, you must calculate your energy savings and compare it to any increase in mortgage. If your energy savings are much greater than the difference of your higher mortgage, then an Energy Efficient Mortgage may be an option you want to consider further. Like conventional mortgages, EEMs are available through many different lenders. Be sure to comparison shop and find the best deal you can.


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