Published on November 5th, 2008 | by Stephanie Evans

What is an Energy Efficient Mortgage and How Can I Get One?

If you are considering home ownership in this buyer’s market, it is important to know that the U.S. Department of Housing and Urban Development works with lenders to make the purchase of an energy efficient home—or energy efficient improvements to an existing home—more appealing and more affordable than ever before.

Energy Efficient Mortgage

Many lenders offer what is called an energy efficient mortgage (EEM), which works in much the same way as a regular mortgage, with a few additional qualifications:

To qualify, the green potential of the home must be assessed through a Home Energy Rating System report, whereby a trained Energy Rater will assign your home a score between 1 and 100, based upon a variety of factors such as insulation, appliances, windows, climate, and utility rates.

A low score indicates that the home is not very efficient, while a higher score indicates an efficient home.

If it is determined that you will save money by implementing energy upgrades, the lender will approve the EEM.

But even if the home is deemed sufficiently energy efficient, you may still qualify for an EEM by utilizing the annual energy savings to increase the amount of your loan.

There are three types of Energy Efficient Mortgages, with varying criteria relative to different buyers:

The conventional EEM—the projected energy savings dollar amount is added to the amount of your loan

The Federal Housing Administration (FHA) EEM—allows buyers to add up to 5% of the value of their home (up to $8000) to the loan amount

The Veteran’s Administration EEM—for qualified members of the military and allows buyers $3000-6000 towards improvement costs or a mortgage

The energy efficient mortgage is an effective way to boost your purchasing potential while saving money and conserving energy and the environment. While your mortgage payment may increase slightly, the monthly savings on energy bills can be many times greater, saving you thousands of dollars over the long term. To find out if your home qualifies for an energy efficiency upgrade or mortgage, talk to your lender about your options.

For more information, check out RESNET: Residential Energy Services Network and the U.S. Department of Housing and Urban Development.