What is a Green Mortgage, and How Does it Work?
How Green Mortgages Help You Buy a More Energy Efficient Home
Green mortgages are based on the principle that a more energy-efficient home means lower utility bills, with more income left over – qualifying a prospective homeowner to buy a more expensive house.
A green mortgage provides you a bigger loan than normally permitted, as a reward for making energy-efficient improvements or buying a home that meets particular energy-efficiency standards.
Borrowers can finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans.
Here’s how Green Mortgages work:
Energy Efficient Mortgages (EEMs) are used to purchase a new home that is already energy efficient. Energy Improvement Mortgages (EIMs) are used to purchase existing homes that will have energy efficiency improvements made to them.
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. These mortgages allow home buyers to add as much as an additional 15 percent of the sale price into the loan, for upgrades such as energy-efficient windows, water heaters, or solar panels. The savings in energy bills offsets the higher monthly mortgage payments, creating more savings over time.
How can you qualify for an energy efficient mortgage?
For a newly constructed home – the home must be certified by the builder that the home was designed and built to meet energy efficiency guidelines (usually through a third party inspection process).
A home energy rater can also inspect the home and issue a Home Energy Rating System (HERS) report certify that the house is energy-efficient. A HERS rating usually costs between $300 and $800. This could be paid for by the buyer, seller, lender, or real estate agent. Sometimes the cost of the rating may be financed as part of the mortgage.
This report is used by the lender to increase the borrower's income by a dollar amount equal to the estimated energy savings. These programs also allow for higher debt ratios because of the presumed energy savings.
The energy savings will translate into higher value from the property as seen in an appraisal/market value. Having a HERS report will increase the value of a home.
Homeowners will also be able to take advantage of the Energy Policy Act soon, which gives tax credits to consumers who conserve energy.
By the way, green mortgages have a lot to offer. But the concept is not new. Major lenders backed by Fannie, Freedie and the VA have financed green mortgages (currently promoted under the Energy Star Program) since 1970.
Information courtesy guest author Brian Laible at Primary Residential Mortgage. Call Brian at 919-256-3133 for more information about Green Mortgages.
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Brian Laible - Ask Brian!
Sr. Loan Officer, Primary Residential Mortgage
701 Exposition Place, Suite 118, Raleigh, North Carolina 27615
ecoSelect Third Party Energy Certification –
The ecoSelect certification in your new home indicates that the construction is designed to provide higher levels of energy efficiency, per the national HERS index, with better indoor air quality and water efficiency than standard new homes. We're not afraid to have third party inspectors check our homes carefully, for your piece of mind and long term value. Learn more about new homes with lower energy costs, here.