Energy efficient mortgages: how they work, who is eligible and how to get approved

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Climate change is already here – and it won’t go away – and governments around the world are expanding financial incentives to cut emissions. This also applies to the US government, which had an overlooked housing incentive in its back pocket offering some homeowners energy efficient mortgage option to help you finance efficiency gains, save on utility bills, and even increase how much house can you afford

At a basic level, EEM increases the amount you can borrow when you invest in efficiency gains. If you qualify, you can combine the cost of these efficiency improvements right into your monthly mortgage payment. Projects that may qualify include performance audits as well as labor, equipment, inspections, and active and passive solar and wind technologies. Read on to learn more about energy efficient mortgages – including what they are, how they work, who is eligible for them, and how to get permission to issue them.

What is an Energy Efficient Mortgage?

There are many tax breaks and rebates to help you fund energy efficiency projects at home, but EEM can help you even before you buy a new home. In fact, this type of financing can apply regardless of whether you buy, sell, or refinance a home. Basically, it is a complementary program that helps you borrow more from your lender to improve the energy efficiency of your home.

If you’re a new home buyer, an energy efficient mortgage can help you buy a more expensive home. It takes into account the projected lower utility costs for an energy efficient home, so you can afford a slightly higher monthly mortgage payment.

What type of loans does EEM cover?

No matter what loan type you apply, you can get EEM through regular loan, FHA loan or VA loan. A regular loan is a mortgage that is not funded or insured by a government agency. An FHA loan mortgage insured by the Federal Housing Administration. Finally, VA credit is a mortgage that is insured by the United States Department of Veterans Affairs and is available only to qualified military personnel, reservists, and veterans.

While resources to promote energy efficiency may vary from state to state, the most common traditional loans, Fannie Mae and Freddie Mac, offer energy efficiency financing.

The two concepts are very similar, but there are several differences – most notably, the maximum threshold for a baseline increase in energy and water efficiency without reporting or estimating energy use. For Fannie Mae, the threshold is up to $ 3,500; while for Freddie Mac it is equal to or less than $ 6,500. There are a couple of small differences in their employment and ownership, as shown in the table below.

Fannie Mae vs Freddie Mac EEM: Comparison

HomeStyle Energy Mortgage from Fannie Mae

GreenChoice Mortgage Freddie Mac

Maximum LTV (Loan to Value Ratio)

Up to 97%

Up to 97%

Funding for energy-related improvements

Up to 15% of the appraised value of the property “as completed”

15% of the cost of the property “as completed”

Accommodation and ownership

All 1 to 4 existing properties; manufactured body (no design changes); all types of accommodation are allowed

Types of real estate from 1 to 4 (apartments, industrial buildings, as well as new and existing real estate objects); industrial houses (no structural changes); cooperative units (if allowed)

Energy reports

An energy report is not required for: basic insulation and water saving items up to USD 3,500; devices for increasing the efficiency of water use; renewable energy sources such as solar panels, wind turbines and geothermal systems; repairing environmental damage or increasing fault tolerance

An energy report is not required for: basic energy and / or water efficiency improvements with a total cost of no more than $ 6,500.

Two Views on EEM: Fannie Mae vs. Freddie Mac

Fannie Mae has an energy efficient mortgage called “HomeStyle Energy Mortgage” this allows you to purchase a home that is energy efficient or will be a home after some improvements have been made. As with most energy efficient funding sources, Fannie Mae requires that you have energy assessment performed in the home by a home energy evaluator or other qualified energy evaluator.

Now, if the improvements you are making cost less than $ 3,500 or meet certain criteria like in the table above, you can opt out of doing an energy estimate. For Fannie Mae HomeStyle Energy Mortgage Lending, Basic Weather Protection includes things like air seal, channel sealing, insulation, smart thermostats and replacement of windows and doors.

However, it is always advisable to go through an energy assessment to find the most efficient ways to improve the energy efficiency of your home. The costs of energy estimates and energy efficiency upgrades to be paid into the home are included in the EEM purchases.

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Freddie Mac also has an energy efficient mortgage called GreenChoice Mortgage… Like Fannie Mae’s EEM, Freddie Mac requires you to have an estimate of your home’s energy use by a HERS evaluator or other qualified energy evaluator, but the threshold is slightly different.

For Freddie Mac, if the total cost of the improvements you make is $ 6,500 or less, then you can opt out of estimating power consumption. Under their terms, the major energy improvements cover things like weather protection, insulation, air sealing, air conditioning or heating replacements for higher efficiency, solar water heaters, low water consumption water heaters, high efficiency home appliances, programmable thermostats, and replacement of windows and doors.

Again, it is highly recommended that you conduct an energy assessment to determine the most cost-effective areas in which you can improve the energy efficiency of your home. Like Fannie Mae, Freddie Mac’s GreenChoice Mortgage allows you to include the cost of energy estimates and energy efficiency upgrades in your mortgage.

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For more information, contact your state’s energy department.

In addition to energy efficient mortgages, there are also tax deductions and rebates that you may be eligible for when you make changes to the energy use of your new or current home. For more information on energy efficiency financing and where you can apply for an EEM, check out your State Energy Office

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