EEM Will Help You Go Green

Thomas Caulen | Jun 17, 2013

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Lenders offer different types of mortgages. The lenders determine the interest rates and amount of money to be loaned to borrowers. Many factors determine the amount of money that a single borrower can be loaned. The most significant factor being borrower risk.

The real estate crash that started in 2008 made many lenders wary of risk. Borrowers looking for a mortgage must have dependable income and good credit to qualify for a loan. Energy efficient mortgages allow people to borrow significant amounts of money in exchange for buying eco-friendly homes.

Energy efficient mortgage is the name for the most common type of green mortgage. The mortgages are offered to homeowners whose homes consume less power and are compliant with sustainable building practices including solar power, use of recycled materials and others.

Lenders who offer green mortgages consider the amount of savings that will be made from the energy efficient components in a green home compared to the average house in the market. The savings are added up to the amount that prospective homeowners may borrow.

Purpose

With Energy efficient mortgages, borrowers make higher monthly payments because they will be spending less on energy. Homeowners are offered money for energy improvements. The loans are insured by the FHA encouraging lenders to borrow for purchase or refinancing.

Types

Green mortgages are available in two forms: conventional mortgages and Federal Housing Administration loans. The FHA offers Energy Efficient Homes and Energy Improvement Mortgages. These loans limit the amount of loan increase based on median price of surrounding homes and limits set by credit rating agencies.

Advantages

The most notable advantage of EEM is that they allow buyers to gain greater purchasing power than their credit would allow. The loans also encourage the development and sale of energy efficient homes. The common rule with mortgages is that the more borrowers take out larger mortgages, the larger the payments they would make. However, this increases the chances of default.

Eligibility

Borrowers are eligible if they meet FHA's income guidelines or live within zones that have been declared disaster zones by the federal government. Properties that are eligible for an EEM are existing or newly constructed single-family units with no more than four housing units of which one is occupied by the owner.

Costs

The cost of EEM must be lesser or the actual cost of the improvements plus report and inspection costs. Eligible properties include those that are 115 percent of the median price of a region or 150 percent of rating agencies loan limit determined by individual counties.

How to Get Energy Efficient Mortgage

Homeowners qualify for EEM once their finances have been evaluated for a home loan. Lenders limit borrowers to spend 28 percent of gross income for housing expenses. However, if a house qualifies for EEM, the homeowner can be allowed to spend 30 percent on mortgage financing.

Find a funding source such as the Federal Housing Administration, Veterans Administration or ratings agencies. The loans are offered in all 50 states to homeowners looking for a green residence.

Find an eligible property. Some homeowners and developers take advantage of the prospect of EEM financing by qualifying for Zero Energy Home Seal. Zero energy homes are energy efficient, make their own solar and wind energy, and sell surplus energy back to the grid.

Most homes require a Home Energy Rating System Evaluation. The factors considered in the evaluation include window types, utility rates, insulation and appliances. The evaluation provides an assessment of a home's energy costs.

Buyers keen on getting an EEM look for homes with HERS reports. Buyers who perform upgrades at the time of purchase can fold the upgrade costs into the mortgage so that the interest is tax deductible.

Warnings

Energy improvements must be affordable. Homeowners must demonstrate the present value of energy savings over the life of the improvements. Funds for the improvements are held in a separate account until the inspections have been completed and verification made on the practicality of the energy savings.

Energy Efficient Mortgages encourage energy conservation by offering incentives to potential homeowners. In the end, it is not just the homeowner who benefits but also the society as a whole since green homes reduce greenhouse emissions.
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Comments

Great Idea!
A federally guaranteed mortgage enhancement for technology which is uneconomic in the absence of purchase and tax credit subsidies. WHAT COULD GO WRONG..?