Would you sign up> for a mortgage that qualifies you for a bigger loan with less income and makes the world a greener place?
You might be able to through an energy-efficient mortgage, or EEM, the government loan granted to borrowers who build or upgrade their homes with energy-efficient features. The problem is most consumers either don t know about the program, which has been around since the early 1990s, or they aren t taking advantage of it.
Enter the Obama administration. Hoping to push home buyers and owners to act greener, the president is funneling about $50 million to the Department of Housing and Urban Development (HUD) to jumpstart the EEM program. In December, he signed the fiscal year 2010 appropriations bill for a number of federal agencies, including HUD, the Department of Transportation and the Department of Labor all devoted to clean energy efforts.
What does the new funding mean for home buyers and owners? Not much detail has been released yet; HUD and the Department of Energy (DOE) are still determining how best to position this product so more people take advantage of it, a HUD spokesman says.
One thing the department says it is aiming for is a more streamlined process of obtaining an energy-efficient mortgage both financially and logistically. The existing program is perceived as complicated and inaccessible. Now, HUD and the DOE are trying to come up with an easier-to-access and less expensive model, says Michael Wolfe, executive director of Energy Programs Consortium, a nonprofit policy group, which is pilot testing an Energy Star mortgage program in several states.
The Federal Housing Administration (FHA), Fannie Mae and the Department of Veterans Affairs all have some version of an energy-efficient mortgage. (There are some differences between the various loans, but the basic ideas are the same.)
But the market in general has been slow to accept and offer EEMs; they re not widely offered by independent lenders. They re like rehab mortgage loans, another FHA program that lets a homeowner borrow the funds to both purchase and renovate a home using credentialed contractors, says Wolfe: A lot of lenders don t like to do those because there s more work involved they have to hold the money in escrow and there are more steps.
So how does an EEM work? Borrowers add the money needed to make these green upgrades say, $5,000 to the mortgage, even if that means they would exceed the traditional loan limit. Borrowers don t have to qualify for the expanded loan. And 100% of the cost of the improvements can be financed. The idea: Your mortgage payments are a little higher, but your utility bills drop more. That s the unique part of an energy-efficient mortgage vs. a regular mortgage: An EEM will count the energy savings as income to the borrower, says Brian Ng, financing coordinator for the Environmental Protection Agency s Energy Star residential program. It gives the borrower an opportunity to qualify for a slightly bigger mortgage in order to get a more energy-efficient home.
Once you have a lender be it FHA or a private firm you need to get an energy rating of your house, which is a comprehensive assessment of the home s energy use. It considers everything from the types of windows and insulation the house has to the major appliances, including the heating and cooling systems and the building structure itself. The main method of evaluating homes is the called the Home Energy Rating System (HERS), and it must be performed by a certified HERS rater. The rating calculates the energy savings on an annual basis and net present value of savings, says Cliff Majersik, the executive director of the Institute for Market Transformation, a green building nonprofit.
See more details about eligibility requirements here
Lenders use the HERS rating to know the value of the home s new efficiency features. That s one of the reasons lenders and realtors haven t promoted energy-efficient mortgages it involves this extra step of getting an energy rating, says Ng.
Getting a home energy audit by a certified HERS auditor costs anywhere from $300 to $500. Some local utilities and state energy offices offer incentive programs that help pay for a HERS rating on behalf of the borrower. However, where an incentive isn t available, the audit is a cost that might discourage borrowers from actually obtaining an energy-efficient mortgage, says Wolfe. HUD and the Energy Department are working to make this part of the process less expensive, Wolfe says.