Events & Press
Energy Efficient Mortgage 101; The Real Story |
| Published by Jan 3rd, 2010 |
| There is so little understanding about what an Energy Efficient Mortgage (EEM) is, how to get one, how to do one and who can benefit from one (and how), that it's not even funny. First off though, let's get the basic description of what it is and some nomenclature and a few misconceptions out of the way. Since Energy Efficiency Management, Inc. specializes in this process and has much experience with the EEM, we feel it's important to help as many people as possible, understand this tremendously valuable program. An Energy Efficient Mortgage (EEM) is a Federal Housing Administration (FHA) or Veterans Administration (VA) program that insures a mortgage loan, which allows the borrower to add "cost effective" energy efficient improvements to their (home) loan that recognizes the energy efficiency of a home. The main idea here, is that the money you save (the borrower) from energy efficiency improvements on your energy bills after adding the improvements, will be greater than the amount of money the borrower will spend each month to cover the cost of the added energy improvements over the installed improvements useful life. So, the idea is that from day one in your newly purchased (or refinanced) home, you get a more energy efficient home that is more comfortable with better indoor air quality and has more added value, but at the same time your monthly expense to live in the home is cheaper than if you didn't have the improvements; that's a good thing. An EEM (from-here-on-out) is not pronounced eeem, it's an EEM (three letters pronounced independently). The term EEM is used interchangeably by Housing and Urban Development (HUD) and FHA to refer to the insuring of a new home loan (mortgage) or an existing home loan under this program. Many people often refer to HUD's insuring of an existing home under this program as an Energy Improvement Mortgage (EIM); stop doing that, you are only confusing people with antiquated terminology. Even the Energy Star web site (and this web site is wonderful and almost always "spot-on" for information), uses this term, but they need to do some homework, because it is an EEM. If you don't believe me, pick up the phone and call HUD to see for yourself. So, now that we have that out of the way, lets talk about some common misconceptions about the EEM: It is expensive; No it is not. An EEM will add principal to your mortgage loan amount,this is true, but remember the concept here is that, the overall money you save in energy will be greater than the money you spend on installed cost of the improvements, that's why FHA will insure the loan (and at a same rate). So, no the EEM should not be considered expensive. If anything, it should help to add tremendous value to your new (or existing) home purchase or refinance. I might not qualify; You do qualify. If you qualify for an FHA loan (203b), then you automatically qualify and are thus eligible to apply for an EEM. There is no further income documentation or concern about debt-to-income-ratio, because you should be saving money on your monthly living expense in your new home by having an EEM It will delay my closing; No it will not. It is a simple process that should not slow down your closing of any real estate or loan transaction. Some people that are not familiar with the process, or don't understand how easy it is, will make this kind of comment. The seller, lender and real estate professionals will all be paid on time and at the usual close of escrow. There will be a separate "hold-back period and portion established to handle the installation of improvements within a timely manner (often up to 90 days best installed by qualified contractors) after the usual close of escrow. My Bank does not offer it; Yes they do, if they offer FHA products. The lender may not realize it, because they may have never done one recently. And you will know they offer it, when they pass the EEM disclosure document in front of you at the time of closing. So, if they don't offer it and you think you may want it; ask for it. My Real Estate Professional didn't tell me about it; Not surprising. Most Real Estate Professionals (agents and mortgage brokers) don't know that much about it, because it has been underutilized for many years, especially during the last fifteen years and before when energy efficiency and environmental concerns were just not a priority. But now HUD (in charge of FHA), has pledged to start promoting the program, presumably for the good of it's customers, for the good of the environment and for the good of the nation. So, ask your real estate professional, and if they're not familiar with it, have them call us. Also, you might consider working with an agent that holds the NAR Green Designation, they should know about the program. An EEM is for new homes; It's not just for newly constructed homes. An EEM can be used to purchase a newly built home with already added energy efficiency improvement features, yes. The reality is though, that since there are far fewer new built homes these days, the vast majority of EEM's lately are being used as a program for the purchase of an existing single family home (condo's and 1-4 multi-family units are okay too), or a refinance of an existing home. It's not easy to find people who do EEM's; You've already found someone. It's one of the things we specialize in. We do the energy rating and report required to generate the EEM. This is called a HERS Report, and HERS stands for Home Energy Rating System. This is an energy audit and report required by FHA to generate the EEM process. It is used to determine which energy improvements will be "cost effective: for you to add onto your loan, which will provide you with grater savings in energy bills over time verses installed costs. Once this is determined by the energy report, you (the borrower) chooses which energy improvements you'd like to add. Now that we have that out of the way, more will be coming soon, on how the EEM process works. If you have questions for now, you may find additional useful information on the HUD web site about EEM's at www.HUD.gov, or don't hesitate to contact us at john@energyefficiencypro.com |