Best Energy Efficient Mortgages and Loan Programs for New Homeowners

An Energy Efficient Mortgage (EEM) serves as a valuable tool for homebuyers and homeowners looking to enhance the energy efficiency of their property with loan. This type of mortgage can be used in different loan plan, including buying or refinancing an already energy-efficient home. It is like one with an ENERGY STAR certification, or you can use it for financing improvements to boost energy efficiency in an existing home.

EEMs are unique in that they know the cost savings resulting from lower utility bills. Lenders use these savings to provide more loan terms with better advantage to borrowers. Normally, this involves improving the borrower’s debt-to-income qualifying ratio, potentially leading to a larger loan amount and a more energy-efficient home overall.

For you to secure an EEM loan, it is typically necessary for you to have a certified home energy rater. You may also need an expert in energy assessment conduct a thorough evaluation of the property. This assessment shows the lender that the home is either already energy-efficient or will become so after implementing the recommended energy-efficient enhancements. This process also informs the lender with other details like the projected monthly energy savings and the value of these energy-efficient modifications, known as the Energy Savings Value.

EEMs are backed by federally insured mortgage programs like FHA and VA, as well as the conventional secondary mortgage market. Different lenders can give different types of EEMs. Their offers includes conventional EEMs, FHA EEMs, or VA EEMs. All of them takes care of the specific needs and preferences of borrowers trying to make their homes more energy-efficient.

Conventional Energy Efficient Mortgage

Conventional EEMs offer you the borrowers an attractive opportunity to enhance your home’s energy efficiency. They also amplify your purchasing power when making energy-efficient upgrades during the home purchase or refinance process.

Fannie Mae’s innovative HomeStyle® Energy mortgage enables you (borrower) to integrate energy improvements into your purchase or refinance mortgage. This empowers you the homeowners to not only decrease utility costs but also enhance the overall comfort and safety of their residences. The scope of upgrades is expansive and can include different options such as solar, geothermal, or wind power installations. Moreover, HomeStyle Energy extends its benefits to enabling borrowers to settle pre-existing energy-related debt, which has other plans like PACE loans. To know about advantages of an energy-efficient home, you can continue reading.

For those trying to finance energy-efficient enhancements within their mortgage arrangements, Freddie Mac’s GreenCHOICE Mortgage steps in. This offering allows borrowers to incorporate energy-efficient improvements alongside any mortgage product and property type. With financing terms that extend up to 30 years, GreenCHOICE Mortgage introduces affordability to the equation, empowering borrowers with increased purchasing power. This is achieved even when dealing with higher debt-to-income and housing expense-to-income ratios. You can then use it for manually underwritten loans, making energy-efficient living more accessible than ever before.

Helpful Mortgage Guide to help you choose:

Federal Housing Administration (FHA) Energy Efficient Mortgage Program

FHA’s Energy Efficient Mortgage program (EEM) serves as a gateway for homeowners to unlock significant savings on utility expenses. This loan plan empowers people to integrate energy-efficient enhancements into their homes. How? Simply by financing these improvements through their FHA-insured mortgage. With EEM, FHA can secure the borrower’s mortgage for the purchase or refinance of their principal residence. It also extends coverage for the cost of energy-efficient upgrades to be undertaken within the home.

One of the major aspects of FHA’s EEM is its flexible qualification process. Borrowers are only required to qualify for the loan amount designated for the home purchase or refinance. You do not have the additional burden of qualifying for the portion of the loan earmarked for energy-efficient improvements. This feature simplifies the process, making it more accessible and streamlined for homeowners.

The energy-efficient improvements eligible for financing under the EEM program are rigorously assessed to ensure they are cost-effective. These improvements involves different forms of elements, including material costs, labor and inspections. Furthermore, the expenses associated with a comprehensive home energy assessment conducted by a certified energy assessor are inclusive.

There are specific limits to the amount of energy-efficient improvements that can be incorporated into the borrower’s regular FHA loan amount.

Limits to the amount of energy-efficient home improvements

The cap is determined by the lesser of two options:

  • the cost of the energy-efficient improvements based on a thorough home energy assessment, or…
  • a calculated percentage of the Adjusted Value, which can vary based on regional and national benchmarks.
    • The Adjusted Value;
    • 115 percent of the median area price of a Single Family dwelling; or
    • 150 percent of the national conforming mortgage limit.

Applications for the FHA EEM can be submitted through an FHA-approved lending institution to the local HUD Field Office. To facilitate this process, HUD offers a searchable list of approved lenders, ensuring that homeowners can easily access the resources required for a successful EEM application.

FHA’s EEM Program

The FHA’s EEM program extends its benefits beyond traditional site-built homes to construction homes as well. The Systems Building Research Alliance provides useful guides into how FHA EEMs can enhance ENERGY STAR certified construction homes. It will show the program’s commitment to fostering energy efficiency across different housing types.

Further details about FHA’s EEM program and its comprehensive offerings is on the FHA website. The information on the site provides homeowners with a detailed ideas to embark on their energy-efficient journey.

Related Mortgage Terms

USDA Single Family Housing Guaranteed Loan Program

The U.S. Department of Agriculture (USDA) takes a proactive role in supporting affordable homeownership through its Single Family Housing Guaranteed Loan Program. Designed to empower low- and moderate-income households, this program collaborates with approved lenders to extend the dream of homeownership to individuals residing in eligible rural areas.

Qualified applicants are granted the opportunity to secure 100% financing, enabling them to embark on various homeownership endeavors within these designated rural regions. Whether it involves purchasing an existing property, constructing a new dwelling, revitalizing an existing structure, making enhancements, or even relocating, the USDA’s Single Family Housing Guaranteed Loan Program stands as a beacon of financial assistance.

This program serves as a catalyst for sustainable housing development and community growth in rural areas. It empowers individuals who might otherwise face barriers to homeownership, fostering a sense of stability and pride within these communities. By collaborating with approved lenders, the USDA ensures that this vital resource is accessible to those who stand to benefit the most.

The USDA’s Single Family Housing Guaranteed Loan Program represents a commitment to fostering vibrant rural neighborhoods while enabling aspiring homeowners to fulfill their aspirations. Through 100% financing and a wide range of eligible activities, this program plays a crucial role in shaping the future of homeownership for low- and moderate-income households residing in eligible rural areas.

Veterans Affairs Energy Efficient Mortgage

The U.S. Department of Veterans Affairs (VA) extends the Energy Efficient Mortgage (EEM) program to eligible military personnel, veterans, and reservists who are looking to enhance the energy efficiency of their newly acquired existing homes. This initiative offers an avenue for those who have served their country to further contribute to a sustainable future while enjoying the benefits of homeownership.

Chapter 7 of VA Pamphlet 26-7 (Revised) serves as a comprehensive guide, providing lenders with valuable insights and guidance on the VA EEM. This resource equips lenders with the necessary information to effectively assist qualified individuals in accessing the benefits of the program.

Through the VA EEM program, veterans and military personnel are empowered to make energy-efficient improvements to their homes, contributing to reduced utility costs and a greener living environment. This loan program not only supports the homeowners’ financial well-being but also aligns with the VA’s commitment to sustainability and responsible homeownership.

As a valuable extension of the broader VA loan offerings, the VA EEM program stands as a middleman to the agency’s dedication to enhancing the lives of those who have served. For a more understanding of VA loans and the opportunities they present, you can visit the VA’s official website.

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