In the quest for reduced utility bills at individual homes and energy independence across the national stage, we are increasingly seeing the opportunities to go green, but the challenge is more often in funding the ‘vision’. At the Federal level, ‘borrowing’ money and increasing our national debt is perhaps inevitable, but homeowners do not have the same luxury to print money. So, borrowing from banks and financial institution that see the advantages of a more energy independent America is now an emerging opportunity for homeowners.
New Businesses are taking the leading in Financing for Green Home Improvement and Remodeling
Over the past few years, a number of innovate companies have emerged to help reduce the initial costs and barriers to entry for home owners that want to renovate with energy saving tactics. E3 Bank is one of the companies that is helping home owners that are looking for Green Home Improvement Financing. E3 Bank was created, “for the growing ranks of consumers who are beginning to understand what it really means to be green and who are hungry for a different kind of bank - one that aligns with their values and "walks the talk." Our Brand Pillars are our guiding principles - the criteria used by our employees and Board of Directors to make decisions.” E3 Bank is committed to putting their money where their values are. Ten percent of their corporate profits will be donated to a charitable foundation whose mission is to build the green economy. Across the landscape, other examples include New Resource Bank’s solar financing initiative, CitizenRe's solar rental plan (still in pilot phase), and Solar City’s group buying program, which also makes it easier to sell power back into the grid in states where this is possible. Another company that provides an innovative financing and service solution for consumers is Sun Run, who’s borrowed a model from commercial markets.
Overview on a mortgage for an Energy Efficient Green Home?
An Energy Efficient Mortgage (EEM) is a mortgage that credits a home’s energy efficiency in the mortgage itself. EEMs give green home loan applicants the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing green home loan applicants to qualify for a larger loan amount and a better, more energy-efficient home.
EEMs are typically used to purchase a new home that is already energy efficient such as an ENERGY STAR qualified home. The term EEM is commonly used to refer to all types of energy mortgages including Energy Improvement Mortgages (EIMs), which are used to purchase existing homes that will have energy efficiency improvements made to them. EIMs allow green home loan applicants to include the cost of energy-efficiency improvements to an existing home in the mortgage without increasing the down payment. EIMs allow the borrower to use the money saved in utility bills to finance energy improvements. Both EEMs and EIMs typically require a home energy rating to provide the lender with the estimated monthly energy savings and the value of the energy efficiency measures — known as the Energy Savings Value.
EEMs (and EIMs) are sponsored by federally insured mortgage programs (FHA and VA) and the conventional secondary mortgage market (Fannie Mae and Freddie Mac). Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs.
To get an EEM a homeowner typically has to have a home energy rater conduct a home energy rating before financing is approved. This rating verifies for the lender that the home is energy-efficient.
Conventional Energy Efficient Mortgages
Conventional EEMs can be offered by lenders who sell their loans to Fannie Mae and Freddie Mac. Conventional EEMs increase the purchasing power of buying an energy efficient home by allowing the lender to increase the borrower’s income by a dollar amount equal to the estimated energy savings. The Fannie Mae loan also adjusts the value of the home to reflect the value of the energy efficiency measures. For more information about Fannie Mae's EEM you can call 1-800-7FANNIE (732-6643).
Freddie Mac: Energy Efficient Mortgages
- Freddie Mac permits the use of higher housing expense to income and debt to income ratios if the home is energy efficient or contains energy efficient items.
- The lender may document the mortgage file with: Appraisal report indicating the energy efficiency of the home; Form 70A, energy addendum; An established home energy rating system (HERS)
- There is no maximum amount the income to expense ratios may be extended due to energy efficiency, however all mortgages are now subject to a maximum 45% Debt to Income ratio.
- There is no special energy efficient provisions for loans assessed in Loan Prospector (LP). Maximum debt to income limits are assessed by LP.
- Freddie Mac permits the purchase of a property that is to be retro fitted, refurbished or improved with energy efficient components. The purchase price may include the cost of the property plus the actual cost of energy efficient improvements. The cost of the energy efficient improvements may be included in the mortgage delivered to Freddie Mac prior to completion of the improvements. An escrow of up to 10% of value may be established to complete the upgrades.
- For new or existing properties that include energy efficient items, these should be noted on the appraisal in the comments section and included in the value as appropriate for the property and location.
FHA Energy Efficient Mortgages
FHA EEMs allow lenders to add 100 percent of the additional cost of cost-effective energy efficiency improvements to an already approved mortgage loan (as long as the additional costs do not exceed $4000 or 5 percent of the value of the home, up to a maximum of $8000, whichever is greater). No additional down payment is required, and the FHA loan limits won’t interfere with the process of obtaining the EEM. FHA EEMs are available for site-built as well as for manufactured homes. Applications for an FHA EEM may be submitted to the local HUD Field Office through an FHA-approved lending institution. Additional information is available from HUD’s Office of Single Family Housing by calling (800) 569-4287. The Manufactured Housing Research Alliance Web site has information about FHA EEMs for ENERGY STAR qualified manufactured homes.
VA Energy Efficient Mortgages
The Veteran’s Administration (VA) EEM is available to qualified military personnel, reservists and veterans for energy improvements when purchasing an existing home. The VA EEM caps energy improvements at $3,000–$6,000. Green home loan applicants should ask their lender about a VA EEM at the beginning of the lending process. More information about VA EEMs can be obtained from the Web site for the U.S. Department of Veteran’s Affairs to learn more about EEMs contact Fannie Mae, Freddie Mac, the FHA or the VA. Additional information about writing energy-efficient mortgages can be found on the Web sites for the U.S. Department of Housing and Urban Development (HUD)
In addition to the financing, get the Return on Investment (ROI) info and the right home improvement products, techniques, and services:
Contractors, home improvement stores, and specialty shops in your area may not yet have a complete familiarity with the ‘green’ opportunities, products, system integration, and overall savings potential. So, you may get some resistance, since people in general are typically more comfortable recommending something that they are already familiar with rather than something new. To help break the inertia, use the information across this website like our Return on Investment Master ROI Table. Also feel free to post a question in our forum on the message board about a particular need for your home relative to your area. Our team has spent multiple years aggregating research from public and private sector performance reports and from manufacturers and homeowners across the country in order to provide you with the perspective you may need to see the initial payback and long term advantages. Environmental enthusiasts and leading institutions like the American Institute of Architects and the National Association of Realtors, see the value and link into our resources to support their members.
The Green Home:
For your overall home improvement, you can save money, improve your family’s health, and save the planet. Find out for free how much it will cost to do different types of home improvement in your home from a qualified and member approved contractor in your area. Get a FREE Quote. Plus, regardless of the size and scope of your home improvement project, save money and keep your home clean with the top rated chemical free and concentrated Green Home Cleaning Products.
Home Improvement Basics:
When it comes to home improvement basics, look for interior home improvements like creating a clean, safe, and healthy home through sustainable ‘green’ furniture, home décor, zero VOC and Interior Paint, plus ENERGY STAR Appliances and Electronics. For energy and utility savings you can focus on insulation and air sealing, windows, doors, lighting and skylights, water saving plumbing opportunities, and high efficiency heating and air conditioning systems. On the outside of your house, look for exterior home improvement opportunities through landscape design and gardening plus solar energy, wind and other power sources. If you are undertaking a major home renovation, an additions, or building a new home, then take the lead to ‘go green’ in as many ways as possible to save money and the environment.
