How to Get an Energy Efficient Mortgage

Energy efficiency ultimately pays off for a homeowner, but environmentally friendly homes cost more. Is there a way for a home buyer to handle the larger financial commitment of a green home? Help is at hand with Energy Efficient Mortgages.

The mortgages are a little known government backed program based on a simple premise: Homeowners with lower utility bills have more money to spend elsewhere.

Difficulty: Easy

Instructions

1. Buyers qualify for a bigger loan. When a buyer’s finances are evaluated for a home loan, lenders normally limit a purchaser to spending 28 percent of gross income for housing expenses. However if the property purchased qualifies for an Energy Efficient Mortgage, buyers are now allowed to spend 30 percent.

2. Find a funding source. The loans are available through the Federal Housing Administration, Veterans Administration, Freddie Mac and Fannie Mae. They are available in all 50 states to buyers looking for a green residence as well as sellers who want to make their properties more energy efficient before a sale and home owners who want to remodel to reduce their energy bills.

3. Find property that makes the grade. Some builders take advantage of the potential of energy efficient mortgage financing by qualifying for a Zero Energy Home Seal from the US Department of Energy. Zero energy homes are not just energy efficient. They actually make their own power through solar or wind, sending electricity back to the power grid.
   Most homes require a HERS report, a Home Energy Rating System evaluation. It’s like a miles-per-gallon test for a car. The HERS evaluation is calculated by an energy rater who looks at factors including a house’s insulation, appliances, window types, and utility rates against the background of the local climate. It’s an assessment of a home’s energy costs.
   
   The evaluation will list the score as it is today. The rater will recommend upgrades, estimate the cost and ultimate savings from the improvements. She’ll also project the resulting increase in the HERS score.
   
   Savvy homeowners focus on upgrades that save more energy than they cost to install, like insulation.

4. Take advantage of a win-win-win situation. Buyers can now qualify for a better, bigger, newer home. They should look for homes with HERS reports or try to convince the seller to pay for one. If the buyer performs needed upgrades at the time of purchase, he can fold the cost into the mortgage so the interest is tax deductible.
   
   Sellers can differentiate their homes in a slow market, making them easier to sell. Since potential buyers can take on more debt, the property becomes more affordable to a wider range of people.
   
   Remodelers can enhance the resale value of their home, while saving on energy bills today. They will be allowed to either increase their exiting mortgage or qualify for a second, because actual out of pocket costs will drop.

5. Help your wallet while helping the environment. The United States Department of Energy Department estimates that homes and commercial buildings consume about one-third of all US energy. The energy efficient mortgage is a way to encourage energy conservation with an incentive where it matters, in the bottom line. Society benefits as well, since energy efficient homes cut greenhouse gas emissions.

[changeling]

on 10/4/2008 Excellent article and maybe very timely for the "go green" crowd who is looking for the elements that this type of mortgage offers.