If you want a house that costs less to heat or cool, consider financing with an energy-related home loan. One of the least-understood mortgage products, the Energy Efficient Mortgage, aka theÂ green mortgage, can help make your house more comfortable, affordable and valuable.Click to see today's rates (Sep 23rd, 2017)
The Energy Efficient Mortgage, or EEM, allows you toÂ either finance an energy-efficient homeÂ make a property more energy-efficient.
If you purchase an energy-efficient house, the EEM offers more flexible underwriting. You can borrow more, because the energy savings make the home more affordable than it would be without the improvements.
For homes that must be retrofitted to use less energy, you can use an EEM to add the cost of approved energy improvements to a mortgage without increasing your down payment.
Your loan amount will be larger. However, you get to stretch your debt-to-income ratios, because the lenders consider the savings youâ€™ll get from the proposed upgrades.
You can use an EEM only for approved renovations that reduce your monthly energy bills. Allowed improvements include those below. However, many other projects qualify.
Typically, you needÂ a home energy evaluator to conduct a home energy rating (also known as a HERS report, for Home Energy Rating System). The cost for this service runs about $300 to $450, according to USA HERS Energy Rating Service.
The rating estimates the monthly energy savings and the value of the energy efficiency improvements, or the Energy Savings Value.
You can find EEM and EIM programs for government-backed loans like FHA and VA. Government-sponsored enterprises Fannie Mae and Freddie Mac also make provisions for energy-efficient houses. However, their products and guidelines differ from the government-backed offerings.
Conforming EEMs expand your purchasing power by adding your estimated energy savings to your qualifying income.
Freddie Mac does not offer EEMS, but their loans all allow applicants to borrow more for an energy-efficient property than for other homes.
Fannie Mae does offer EEMs. Its HomeStyleÂ® Energy loan lets homeowners finance new energy improvements or pay off debt they incurred to increase the efficiency of their homes.
Unlike government-backed EEMs, the conforming program allows you to finance improvements on investment or vacation homes.
HomeStyle Energy allows you to use up to 15 percent of the â€śas completedâ€ť appraised value of the property for new energy improvements. You can do this when purchasing or refinancing your home.
If your home, after improvements, is worth $200,000, you could borrow $30,000 on top of your purchase or refinance loan to make energy improvements. You can add the EEM to almost any Fannie Mae mortgage product.
You can add the cost of approved energy improvementsÂ to your FHA loan amount without running afoul of FHA loan limits. The maximum amount of the portion of the EEM for energy efficient improvements is the lesser of five percent of:
For example, in Reno, NV, the FHA loan limit is $345,000, while the conforming loan limit is $424,100 for a single-family home. If you finance a $400,000 house, you can add energy improvements up to the lesser of:
In this case, you'd calculate the maximum amount from the FHA loan limit. You can add $17,500 in improvements to your loan.
Energy improvements financed with an EEM must be cost-effective. This means the expense of adding them is less than or equal to the energy savings they create.
Eligible military personnel, reservists and veteran can use the Veteran's Administration (VA) EEM for energy improvements when purchasing or refinancing an existing home.
You can increase your purchase or refinance loan by up to $6,000 for qualified improvements any time before closing, without additional approval from the VA. Like FHA EEMs, your improvements must be approved and cost-effective.
You can complete your improvements before or after closing. To be reimbursed for completed energy improvements, you must have finished the projectÂ no more than 90 days before closing the EEM.
For improvements that will be completed after closing, the lender holds EEM funds in escrow until the work is done. All work should be finished within six months of closing.
Happily, current mortgage rates are still low. However, rates and housing prices have been rising, and experts anticipate them to continue the trend.
Because EEM loans are some of the cheapest way to finance home improvements, consider adding one when you buy an energy-efficient house, or purchase on e that needs upgrading.Click to see today's rates (Sep 23rd, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)