Who Qualifies For An Energy Efficient Mortgage? The good news is that all home buyers who qualify for a home mortgage also qualify for an Energy Efficient Mortgage!
It’s easier than you may think to enjoy the savings and comfort of an energy efficient home. Since an energy efficient home is cost-effective, there are financing programs available from mortgages to home improvement loans, which allow more people the opportunity to live in such a home.
You can benefit from energy efficient financing whether you’re buying, selling, refinancing, or remodeling a home. If you’re looking to buy an energy efficient home, you can qualify for a better, more comfortable home because with lower utility costs, you can afford a larger mortgage payment. You can also obtain financing to make energy efficient improvements to an older home before moving in or to your existing home. And if you put your home on the market, you can use its energy efficiency as an attractive selling point.
Existing Homes: Is Your House Leaking Energy Dollars? Many existing homes do not have the benefit of today’s high-quality energy efficiency products and/or techniques. If that is the case for your home, your energy bills may be much higher than necessary. Home buyers purchasing an existing home will need to have a Home Energy Rating System (HERS) evaluation performed on the home. This will measure the home’s current energy efficiency and allow the energy rater to recommend cost effective efficiency measures. The home buyer can then choose which of the efficiency measures they would like to install. An Energy Efficient Mortgage will allow you to finance 100 percent of the energy efficiency upgrades, up to 15 percent of the value of the home.
New Homes: Did You Know That New Does Not Necessarily Mean Efficient? Many home buyers assume that a new home will incorporate state-of-the-art technology and techniques and have energy efficient appliances. This is not always the case. The only way to be sure that a new home is energy efficient is to have a Home Energy Rating System (HERS) evaluation conducted. A home energy rating is a standard measurement of the home's energy efficiency, and allows a home buyer to easily compare the energy costs for the homes being considered. Home energy rating inspections are conducted on site by a residential energy-efficiency professional, also called a home rater. Home energy raters are trained and certified by the operating home energy rating system. The builder can also follow the guidelines of a prescriptive program, such as the U.S. Environment Protection Agency’s (EPA) ENERGY STAR Builder Option Program, which specifies that energy efficiency measures were incorporated in the design and construction process. The program provides the builder with the specific energy measures to incorporate in the home design to achieve an energy efficient home program. The home is then evaluated with a HERS rating.
Energy-Efficient Financing Programs
There are two types of Energy Efficient Mortgages (EEMs): one for a new home and one for an existing home. With an EEM, you can purchase or refinance a home that is already energy-efficient. Or you can purchase or refinance a home that will become energy-efficient after energy-saving improvements are made. Most energy efficient financing programs offer both types of EEMs, as well as home improvement loans for making energy efficiency upgrades to your existing home.
Home Energy Rating
Most energy efficient financing programs will encourage you to have an energy rating for your new or existing home, which will tell you and the lender how energy efficient it is. A rating typically involves an inspection by a professional energy rater who is certified under a nationally or state accredited home energy rating system (HERS). There are several options regarding HERS, so the type of HERS used will depend on where you live. Some states even have more than one HERS.
For the most part, an energy rater will inspect the energy-related features of a home, such as insulation levels, window efficiency, heating and cooling systems, and air leakage. After the inspection, the energy rater will probably give you a report that includes the home’s energy rating along with an estimation of annual energy use and costs. The report also may include recommended energy efficient improvements, if needed, and their costs, as well as the potential annual savings and eventual payback of the improvements.
To help qualify for most energy efficient financing, the report usually must show that the home is energy efficient or that recommended improvements are cost-effective and will save you more money than you’d be borrowing to install them. While calculating whether a borrower qualifies for a mortgage, EnviroLending will consider these savings and add the cost of the improvements into the mortgage. Or, if the home is already energy efficient, we can stretch the debt-to-income qualifying ratio, which is expressed as a percentage (the ratio is calculated by dividing a borrower’s monthly payment obligation on long-term debts by the borrower’s net effective income or gross monthly income).
The cost of a home energy rating and how it can be paid—by the borrower, the seller, the real estate agent, or financed as part of the mortgage—as well as the availability of certified energy raters, can vary from state to state and from one energy efficient financing program to another.