FHA has been offering mortgages for home energy improvements for decades. Now other lenders see the value of offering incentives for energy efficient improvements. Come summer, Fannie Mae is going to offer a new program, and Energy Star will start offering ‘EnergyStar Mortgages.’
For an Energy Efficient Mortgage (EEM) to work, lenders, appraisers and energy auditors need to be working together and on the same page. The first step is an energy audit of the home to be purchased to determine improvements necessary to save money.
Energy savings calculated by the audit and spelled out in the report are considered income and allow the cost of the improvements to be rolled into the mortgage. As a simplified example, if a buyer can make improvements that save $2400 a year on energy bills (or $200/month), that amount is income and seen as what the buyer can afford to spend extra on improvements.
That savings figure, however, must be more than the monthly cost of the improvements. I have heard different numbers, but one mortgage broker I spoke with said it must be double. So in my simple example, the cost of the improvements cannot be more than $100/month.
Most mortgages require appraisals, and the appraiser must be proficient in energy efficient buildings. This has been a sticking point in many cases, because appraisers don’t always take into consideration energy efficient features. They often appraise a 3 bedroom/2 bath energy efficient home as any other 3 bedroom/2 bath home. And this is what I mean when lenders, energy auditors AND appraisers must all be on the same page for an EEM to work.
Here are the basic steps to getting an EEM:
> Find a lender that does EEMs.
> Get an energy audit and HERS rating.
> Decide which of the energy efficient measures you wish to employ (choose the most cost-effective ones, which will be pointed out in the report).
> Find an appraiser that takes energy efficiency into consideration.
> Close the transaction, and install your energy efficient features.
> Save money, and be more comfortable!
This would also apply for an energy efficient remodel.
Read The Benefits of an Energy Audit for Your Home
to find out more about audits and HERS ratings, since they are required for an EEM.
Read more in The New York Times.
