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What are Energy Efficient Mortgages?

By Amanda Curry · Feb 1, 2017 · Mortgage

What are Energy Efficient Mortgages?

Image courtesy of Flickr, mattwalker69

In this article, we answer your most frequently asked questions about Energy Efficient Mortgages (EEM).

In recent years, there has been a strong push towards energy efficient homes and the ''go green'' movement. As you may know, energy efficient homes cost less to run because homebuyers can essentially save on their energy costs, which makes them very appealing to homebuyers.

You may not realize it, but when looking for a new home, you may be able to stretch your debt to income qualifying ratio in order to qualify for a larger loan amount, and a better home, if you are in the market for an energy efficient home. Energy Efficient Mortgages, or ''Green Mortgages'' let you borrow extra money to pay for energy efficient upgrades to your current home or old home.

In this article, we answer your most frequently asked questions about Energy Efficient Mortgages (EEM).

What is an Energy Efficient Mortgage?

An Energy Efficient Mortgage recognizes that energy efficient homes cost less to operate on a monthly basis than standard homes since they use less energy. Therefore, home buyers who chose energy efficient homes can afford to spend more on their housing expenses because they are likely to spend less on their energy costs. By choosing an EEM, borrowers will be able to qualify for a larger mortgage as a result of their energy savings.

A home energy rating is required to provide the lender with the estimate monthly energy savings and the value of the energy efficient measures - known as the Energy Savings Value.

How does an Energy Efficient Mortgage differ from an Energy Improvement Mortgage?

The term EEM is commonly used to refer to all types of energy mortgages, including Energy Improvement Mortgages (EIMs). In this case, an EIM allows borrowers to include the cost of energy-efficiency improvements to an existing home in the mortgage, without increasing the down payment. These improvements could include a new HVAC system, tightening of window and door seals, and extra insulation.

A certified home energy rater will examine the home and suggest different improvements. Once these improvements are made and approved, the lender will repay the expenses to the borrower from an escrow account. These expenses would have been agreed and approved under the mortgage contract.

Borrowers of an EEM or EIM will carry a higher mortgage payment, but the additional cost may be balanced out or even erased by lower ongoing energy costs. Both mortgages are sponsored by federally insured mortgage programs (FHA and VA) and the conventional secondary mortgage market.

Are there different kinds of EEMs?

Yes-There are actually three different kinds of EEMs. Your lender can help you decide which one makes the most sense for you.

1. FHA Energy Efficient Mortgage: This type of EEM allows you to take advantage of the benefits of FHA financing. You can borrow up to 5% of whichever of the following is the least:

1. your home's appraised value;

2. 115% of the median area price of a single family home;

3. 150% of the conforming Freddie Mac limit for that area

2. Conventional Energy Efficient Mortgage : A conventional EEM is offered by lenders who sell their loans to Fannie Mae and Freddie Mac. This type of loan is much more powerful than the FHA loan, allowing homebuyers to borrow up to 15% of the home's appraised value for improvements

3. VA Energy Efficient Mortgage: Available for past and present military personnel, the VA EEM may only be used when purchasing or refinancing a home. It allows you to borrow up to an additional $6,000 for energy efficient upgrades if the projected savings exceeds the resulting increase in mortgage payments.

It's important to note that except for VA EEMs, there is no fixed cap on how much you can borrow for energy improvements! Both conventional and FHA EEMs are based off of your home's value.

Can Energy Efficient Mortgages Work for You?

In many cases, you don't have to worry about qualifying for an EEM. If you already qualify for a regular mortgage, in most cases you can qualify for an EEM. One unit, single-family, owner occupied residences, PUDs and condominiums can qualify for the EEM. The homes can be new construction or existing housing. The EEM can be used for homes that are energy efficient at the time of purchase.

To get an EEM, you'll have to make a list of what improvements your home needs. You may have an idea of the improvements you need, however, you'll have to follow the official suggestions. Suggestions will come from a Home Energy Rating System. It's an evaluation of how energy efficient a home is. Essentially, a trained Energy Rater will evaluate your home, giving the home an overall rating and recommendations for cost-effective energy upgrades. Your lender can help you find a licensed Energy Rater.

Can I Really Save with Energy Efficient Updates?

Energy efficient upgrades can equal huge cost savings! Here are a few facts that will give you an idea of how upgrading your home can help you save money:

1. Heating and cooling accounts for 50-70% of the total energy used in the average American home.

2. 60% of the existing homes in the US are not properly insulated!

3. Updating your insulation can save you up to 20% on heating and cooling costs.

4. Outdated windows account for nearly 25% of the annual heating and cooling costs for the average American home.

5. Faulty, outdated duct work can cause a 20% loss of air in homes with central air and heating.

6. Energy-star appliances, such as a dishwasher, can save you up to 13%.

7. Programmable thermostats can save about 2% on heating bills and more than 3% on cooling bills.


We hope this short guide has given you some valuable insights into Energy Efficient Mortgages and Energy Improvement Mortgages. An EEM can help you feel more in control of your budget and your family's impact on the environment.

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