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Energy efficient mortgages or EEM’s are a type of loan that credits a home based on its current energy efficiency. In order to be considered energy efficient, a tool, appliance, heating, or cooling system needs to simply use less energy than its basic, and less efficient, counterpart. An EEM gives lenders the power to extend the borrower’s debt-to-income qualifying ratio, which means that they may be able to take out a larger loan for their home.
A Federal Housing Association (FHA) EEM provides mortgage insurance to the borrower who is looking to purchase or refinance their home, and incorporate the costs of energy efficient improvements into their mortgage. The borrower does not have to qualify for additional money, and is not required to make a down payment on the EEM loan. The limitations put on the FHA EEM loan totals can change based on the cost of energy effective improvements a person makes to their home. The maximum amount that can fluctuate is whichever of these options is smallest. The lesser of 5% of: property value, 115% of the average single family home in the area, and Veterans Administration (VA) EEM’s. The only limitations with VA EEM’s is that they are only available to veterans and qualified military personnel, and the loan cut offs are between $3,000 and $6,000.
Energy efficient improvements will start to become more and more common, as current home owners and future homebuyers begin to realize what their value is. Not only are these green improvements better for our environment, but they also help to save the money in our pockets. Perhaps the short-term investment is too much for someone to handle at first, but when they look at and consider what they’ll save in utilities down the road, they will be much happier. This is especially the case if you intend to sell your home down the line, because energy efficient products will only help to raise the value of your home.
Mark Scheets is a writer for Total Mortgage Services.
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