If youâ€™re looking for a cost-effective way to transform your home into a more eco-friendly living area, consider applying for a green mortgage. A green mortgage, which is also called an Energy Efficient Mortgage (EEM), is a type of loan that provides you with a larger amount of money than you may normally receive with a standard mortgage. There are numerous benefits of obtaining an EEM, and virtually anyone can apply for this loan.
What is an energy efficient mortgage?
An EEM is essentially a monetary reward for consumers who make energy saving improvements on their homes. Those who purchase homes that meet certain energy efficiency standards can also obtain an EEM. This type of loan is backed by various government mortgage programs as well as private companies. A green mortgage is not an additional mortgage. Itâ€™s rolled into a primary mortgage, which means you only need to make one monthly payment.
What are the benefits of a green mortgage?
An EEM provides you with the funds to convert your home into an environmentally friendly place, which means you lower your familyâ€™s carbon footprint. An energy efficient home costs less to maintain, so you will have more money to spend on a monthly mortgage. This means you may qualify for a larger loan amount. Using the funds from an EEM lets you create a more comfortable, affordable and long-lasting living space.
Individuals who would benefit most from this type of loan are:
- new homeowners who cannot afford to make eco-friendly renovations
- buyers looking at houses that already have upgrades
- homeowners who are losing money each month due to costly utilities
- people refinancing in order to make upgrades
- homeowners with outdated utility, heating or cooling systems
What does an EEM cover?
There are numerous upgrades that a green mortgage will cover. If your home needs better insulation, a more efficient heating or cooling system, modernized duct work or a new chimney, this loan will provide you with the money you need to make the changes. You can also use the funds for installing various solar technologies, weatherproofing, switching to double-pane windows or installing a tankless water heater.
What is the application process?
Whether you are applying for a new mortgage or refinancing a current one, the process for obtaining a green mortgage is the same. Essentially, if you qualify for a traditional mortgage, you will qualify for an EEM as well. You can apply for an Energy Efficient Mortgage at a bank, mortgage company or other lending institution that provides home loans. To be eligible for a green mortgage, the proposed upgrades to the home must be cost-effective. A Home Energy Rating System report will determine this.
A HERS inspection details which improvements are needed and estimates the potential future savings. Once the inspection is over, you can qualify for the amount of money you will need to make any changes. After the loan closes, that money goes into an escrow account until the renovations are made on the home. You may hire a professional to perform the upgrades, or you may do them yourself. The loan funds are then paid to you after an inspection on your home reveals that the upgrades have been completed.
What are the different types of green mortgages?
There are 3 main types of Energy Efficient Mortgages, and each one provides a different amount of funding. A conventional EEM, which is typically sold to Fannie Mae or Freddie Mac, lets you borrow no more than 15% of the appraised value of the home after upgrades. An FHA EEM allows you to borrow up to 5% of the homeâ€™s value. Finally, a VA EEM is available to military personnel and provides $3,000 to $6,000 for energy improvements, regardless of the homeâ€™s value.
The disadvantage of choosing an EEM is that the savings on upgrades must be more than the amount borrowed. This means you may need to avoid the more costly renovations. In some older houses, the costs for improving energy efficiency may be too high. However, in most cases, obtaining an Energy Efficient Mortgage allows home buyers and current owners to take control of their budgets while creating environmentally sound living spaces.