Consider an Energy Efficient Mortgage

An Energy Efficient Mortgage, or EEM, may provide home buyers with the ability to qualify for a larger loan than a traditional mortgage loan. Whether the purchase is a new or existing home, one that is already energy efficient or one that the buyer will make energy efficient following the purchase, the idea behind the EEM is simple.

A more energy efficient and therefore more affordable home enables you, the home buyer, to qualify for a larger loan. The EEM accounts for the home owner spending less money on energy consumption and applies that savings as income in underwriting the loan. Case in point: A mortgage customer with a gross income of ,000 might qualify for a ,000 home with a traditional mortgage loan, but with an EEM loan that figure could increase to a borrowing capacity of ,000!

Qualifying for an Energy Efficient Mortgage is similar to qualifying for a traditional conforming mortgage. The underwriter considers the mortgage applicant’s credit score, debt to income ratio, ability to repay the loan, etc. – just like a traditional loan. The application process differs in that it begins with a HERS (Home Energy Rating System) report on the existing home or the plans of the new home being built. With new homes, the report identifies how energy efficient the home is, while with existing homes, the report identifies how the home's energy efficiency can be improved through the installation of energy saving features.

For existing homes, the cost of the proposed efficiency updates can actually be financed through your EEM loan. When the HERS report is presented, it details the current energy efficiency of the home and provides a checklist of improvements that can be made to improve the home's energy efficiency. Consumers can then borrow up to 15% of the home's appraised value in order to make the energy efficient improvements. For a home that appraises at ,000, you could finance up to ,000 for energy efficient upgrades!

The important thing to understand about Energy Efficient Mortgages is that can potentially help borrowers leverage a slightly larger loan amount than they might otherwise qualify for. EEMs don’t necessarily impact the interest rate on the loan: As with any mortgage, the interest rate is tied to a buyer's credit score. That said, there is a effort undertaken by the Energy Programs Consortium to enhance EEM products by offering reduced rates, but as of this writing that has not yet materialized.

Thus, the benefit of the current structure of Energy Efficient Mortgages EEM lies in the debt to income ratio adjustments that result from the underwriting process in an Energy Efficient Mortgage. The incentive for homebuyers to utilize EEM's comes from realizing the benefit of lower utility bills, being able to qualify for a more expensive home and knowing that their home's carbon footprint is as small as it can be.

Source information provided by Envirolending.