Combine energy savings, go green with the 203k loan.
THE ENERGY EFFICIENT MORTGAGE means comfort and savings. When you are buying, selling, refinancing, or remodeling your home, you can increase your comfort and actually save money by using the Energy Efficient Mortgage (EEM). It is easy to use, federally recognized, and can be applied to most home mortgages. EEMs provide the borrower with special benefits when purchasing a home that is energy efficient, or can be made efficient through the installation of energy-saving improvements.
Home owners with lower utility bills have more money in their pocket each month. They can afford to allocate a larger portion of their income to housing expenses. If you have more cash, why not buy a better, more comfortable home? There are two options with the Energy Efficient Mortgage.
The TWO SIDES of the EEM COIN.
Finance Energy Improvements!
Cost-effective energy-saving measures may be financed as part of the mortgage! | |
Make an older, less efficient home more comfortable and affordable! |
Increase Your Buying Power!
Stretch debt-to-income qualifying ratios on loans for energy-efficient homes! | |
Qualify for a larger loan amount! Buy a better, more energy efficient home! |
WHO BENEFITS from the ENERGY EFFICIENT MORTGAGE?
Buyers:
Qualify for a larger loan on a better home! | |
Get a more comfortable home NOW. | |
Save money every month from Day One. | |
Increase the potential resale value of your home. |
Sellers:
Sell your home more quickly. | |
Make your house affordable to more people. | |
Attract attention in a competitive market. |
Remodelers/Refinancers:
Get all the EEM benefits without moving. | |
Make improvements which will actually save you money. | |
Increase the potential resale value of your home. |
Pay for energy improvements easily, through your mortgage. Your lender can increase your loan to cover energy improvement costs. Monthly mortgage payments increase slightly, but you actually save money because your energy bills will be lower!
HERS, or Home Energy Rating Systems.
A HERS report is similar to a miles-per-gallon rating on a car. HERS are programs which provide evaluations of an individual home’s energy-efficiency. A HERS report is prepared by a trained Energy Rater. Factors such as insulation, appliance efficiencies, window types, local climate, and utility rates are used to rate the home and calculate energy costs.
A HERS Report Includes:
Overall Rating Index of the house as it is. | |
Recommended cost-effective energy upgrades. | |
Estimates of the cost, annual savings, and useful life of upgrades. | |
Improved Rating Index after the installation of recommended upgrades. | |
Estimated annual total energy cost for the existing home before and after upgrades. |
A Rating Index is between 1 and 100. A lower index indicates greater efficiency. Cost-effective upgrades are those which will save more money through energy savings than they cost to install.
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. No matter how the rating is paid for, it is a very good investment because an EEM could save you or your buyer hundreds of dollars each year.
THIS IS WHY the EEM WORKS.
Energy-efficient homes cost less to own than non-efficient homes, though they may start off with higher price tags.
Older Same Home with existing home energy improvements Home price $ 150,000 $ 154,816 (90% mortgage, 8% interest) Loan amount $ 135,000 $ 139,334 Monthly payment* $ 991 $ 1,023 Energy bills + $ 186 + $ 93 The true monthly cost of home ownership $ 1,177 $ 1,116 Monthly savings - $ 61
Estimated mortgage payments are based upon principle and interest only, and do not include taxes and insurance. Value indicated here is for comparison only, and will vary from home to home.
Many homes qualify for energy upgrades. This home qualified for $4,816 in upgrades. With the EEM, lenders recognize the savings the upgrades will bring. Borrowers may use these potential savings like extra cash, and add the cost of upgrades into the mortgage, paying them off easily as part of the monthly mortgage payment. Once the upgrades are installed the potential savings turn into real savings.
Another EEM option is for the lender to allow higher qualifying ratios for borrowers who will occupy a property meeting certain standards for energy efficiency. When the home has been built or retrofitted in conformance with the International Energy Conservation Code (IECC) standards for 2000 or later, then the lender may “stretch” the borrower’s qualifying ratios. A debt-to-income ratio “stretch” means that a larger percentage of the borrower’s monthly income can be applied to the monthly mortgage payment. That means the buyer has more borrowing power based up on the same income.
WHAT the EEM DOES for a BUYER’S BORROWING POWER?
For a standard home without energy improvements:
Buyer’s total monthly income | $5,000 |
Maximum allowable monthly payment 29% debt-to-income ratio | $1,450 |
Maximum mortgage at 90% of appraised home value | $207,300 |
For an energy-efficient homes (2000 IECC)*:
Buyer’s total monthly income | $5,000 |
Maximum allowable monthly payment 33% debt-to-income ratio | $1,650 |
Maximum mortgage at 90% of appraised home value | $235,900 |
Added borrowing power due to the Energy Efficient Mortgage: $28,600
*Interest rate 7.5%, downpayment of 10%, 30-year term, principal & interest only (tax & insurance not factored.)
In other words:
This buyer got into a home worth thousands of dollars more, just because it was energy efficient. That could mean a home with more space, in a better location, or in better overall condition.
FHA’s Energy Efficient Mortgage Program
The FHA Energy Efficient Mortgage covers upgrades for new and existing homes and is now available in all 50 states. Key features includes:
Loan limits may be exceeded | |
No re-qualifying | |
No additional down payment | |
No new appraisal |
The FHA 203(k) loan enables a home buyer or investor to obtain a single loan to finance both property acquisition and to complete major improvements after loan closing and can be combined with FHA’s EEM.