What are Energy Efficient Mortgages (EEMs)?
Energy Efficient Mortgages are mortgages that benefit from homes that either have high energy efficiency ratings or that can benefit from renovations that increase the efficiency of existing homes. They were created to encourage homeowners and homebuyers to make decisions that benefit the environment as well as their pocket books. Since energy efficiency lowers heating and cooling bills while reducing a home’s carbon footprint, everybody wins.
How do EEMs work?
EEM’s are applicable for FHA, Fannie Mae and Freddie Mac loans. Under these programs, lenders take into account the fact that higher energy efficiency leads to lower energy bills. This means more disposable income to apply to a mortgage for a borrower. As a result, a borrower purchasing an energy efficient home or renovating a home to increase energy efficiency can afford more house that under typical circumstances.
In this loan structure, lenders use a HERS (Home Energy Rating System) Report to determine eligibility of a home. This allows them to know if a home meets the requirements as well as what needs to be done in terms of improvements to bring the property within energy efficiency tolerance.
What are the benefits of EEMs?
Making a decision about a home purchase or capital improvement needs to make financial sense to be feasible. Good intentions don’t pay the bills, so the government has created a mechanism
For buyers
- More home for their money
- Monthly utility savings
- Increased resale value
- Lower down payment
For sellers
- Increased pool of buyers
- Property differentiation
- Reduced market time
For homeowners
- Lower utility bills
- Increased home value
- Increased market value
- Ability to finance energy improvements into a mortgage
