Energy Efficient Mortgages

Real Estate

Energy Efficient Mortgages


In 1992 Congress mandated a pilot demonstration of energy-efficient mortgages (EEMs) in five states. In 1995 the pilot was expanded as a national program. FHA insured 16,000 EEMs in 1998, 30,044 EEMs in 1999 and 28,578 in 2000.

EEMs recognize that reduced utility expenses can permit a homeowner to pay a higher mortgage to cover the cost of the energy improvements on top of the approved mortgage. FHA EEMs provide mortgage insurance for a person to purchase or refinance a principal residence and incorporate the cost of energy-efficient improvements into the mortgage. The borrower does not have to qualify for the additional money and does not make a downpayment on it. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, or savings and loan association, and the mortgage is insured by HUD.

The Fannie Mae Energy Efficient Mortgage (EEM) is one of the most important products in their Housing and Environment Initiative, a comprehensive menu of mortgage options designed to promote the design, construction, and purchase of more efficient homes.

To qualify for an EEM, the property must have a Home Energy Rating Systems (HERS) report which evaluates the subject property's energy efficiency. Prepared by a trained Energy Rater, a HERS report covers such factors as window types, local climate, appliance efficiencies, insulation and utility rates to rate the home and calculate energy costs. The cost of the energy rating may be financed as part of the cost-effective energy package.

Program benefits

- Energy savings reduce monthly operating costs

-100 percent of energy improvements can be financed--up to 15 percent of the value of the home for existing homes and 5 percent of the home's value for new construction.

- Increase borrower qualifying income

-More comfortable home in all seasons and climates

-EEM allows borrowers to qualify for a larger mortgage as a result of energy savings