Buying a home that is energy efficient may have more benefits than lower utility bills and a lower impact on the environment. Green homes (including an existing home that you are intending to green-up) are eligible for an Energy Efficient Mortgage (or EEM). Fannie Mae, Freddie Mac and the FHA offer Energy Efficient Mortgages which allow borrowers to finance energy efficient improvements at the same time allowing for a higher debt-to-income ratio. The idea is a simple one: since your utility bills would likely be lower, that money can go towards affording more home. That part I think is more mortgage marketing hype but I get the point.
FHA Energy Efficient Mortgage:
On existing homes that a borrower intends to add energy saving improvements like new windows, new furnace, solar panels, etc, the FHA will allow you to borrow up to 5% greater than the value of the home (up to a limit of $8,000) to make the improvements. The amount can also exceed the FHA loan limits for your area too and combined to work with the FHA 203K improvement program. The work must also be completed within 90 days of closing.
This doesn’t only apply to existing construction. Purchasers of newly constructed homes, including modular and manufactured housing, can qualify for an EEM as well.
To learn more about the FHA Energy Efficient Mortgage, check out the HUD EEM site or talk to a FHA mortgage lender familiar with the EEM program.
The Veterans Administration also has an Energy Efficient Mortgage provision for VA borrowers up to $6,000. The guidelines are listed in their VA Pamphlet 26-7 in Chapter 3. Applicable improvements allowed by the VA EEM program are:
- solar heating systems, including solar systems for heating water for domestic use
- solar heating and cooling systems
- caulking and weather-stripping
- furnace efficiency modifications limited to replacement burners, boilers, or furnaces designed to reduce the firing rate or to achieve a reduction in the amount of fuel consumed as a result of increased combustion efficiency, devices for modifying flue openings which will increase the efficiency of the heating system, and electrical or mechanical furnace ignition systems which replace standing gas pilot lights
- clock thermostats
- new or additional ceiling, attic, wall and floor insulation
- water heater insulation
- storm windows and/or doors, including thermal windows and/or doors
- heat pumps, and
- vapor barriers.