by Louisa May
At first glance, an Energy Efficient Mortgage (EEM) sounds great.
This loan is based on the premise that a home owner will be paying out less money on utility bills in an energy efficient home. The money saved on utilities is considered income, and this “income” qualifies said home owner for a bigger loan. Basically, the home’s energy efficiency is figured into the number crunching of the mortgage itself. The trouble is, this is a home owner’s “virtual” savings.
The savings are there like virtual particles but something that both is and yet is not visible in the palm of one’s hand- such as those particles creating a magnetic field, could translate into a missed payment when applied to the art of balancing a personal budget. That is, savings on paper differs from cash in hand and may alter the home owner’s long term ability to meet the higher mortgage payment each month. So, caveat emptor is something to think about with EEM’S, too.
That’s just my humble opinion. Let’s look at the fine print. An EEM comes with a higher interest rate and mortgage insurance. In order to qualify for this loan for an existing home, the applicant needs to provide a Home Energy Rating System report (HERS) indicating that the home meets all energy efficient guidelines. A trained Energy Rater must be commissioned to prepare this report. The cost is usually a few hundred dollars. A home owner can add as much as 15% of the sales price into an EEM for making improvements that are suggested in the report, upgrades that might include solar panels, energy efficient windows or a new energy efficient furnace. The report details not only efficiency improvements but estimates the cost of making those improvements as well as the savings.
An architect, builder, or developer can provide proof for a new home, and EEM’s are often used to purchase new homes that are already energy efficient, such as Energy Star approved homes. Energy Star is a joint program of the US Environmental Protection Agency and the US Department of Energy.
Jeffrey Cole, founder of MyEnergyLoan.com says that mortgage volume for green loans has risen over 25% this year over last and that commercial markets are driving this growth.
And he’s not the only enthusiast. Legislators support green mortgages. The Housing and Economic Recovery Act of 2008 includes a provision to streamline and promote green mortgages. In New York, Vermont, and California, bills have been enacted to promote EEM’s, and in Texas, legislators have passed a bill to develop energy ratings for homes. Uniform ratings would create new standards that would help speed the processing of green loans.
EEM’s are sponsored by federally insured mortgage programs. FHA EEM’s allow lenders to add 100% of the additional cost of energy efficiency improvements to an already approved mortgage loan, as long as the costs don’t exceed $4,000.00 or 5% of the value of the house, up to a maximum of $8,000.00, whichever is greater. VA (Veteran Administration) EEM’s are available for veterans or qualified military personnel and reservists purchasing existing homes, but the VA EEM caps energy improvements at $3,000.00 to $6,000.00
The green mortgage market may be good for the economy and for helping address the real challenges of the energy crisis. If, after thinking about the world of virtual particles, you’d still like more information, the EPA Energy Star website is the place to start:www. energystar.gov
Check out our Green Pages for information on money saving tips that help the environment. Once there, click on the Green Forum for more articles by feature writer Louisa May.
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