How Does an Energy Mortgage Work?
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Interested in getting an energy mortgage? Find a certified RESNET Home Energy Rater to conduct an energy rating first!
The best way to understand how energy mortgages work is by looking at examples, such as those below of an energy improvement mortgage and an energy efficient mortgage respectively.
The energy improvement mortgage (EIM) model shows how:
- The homebuyer adds $4,000 to their mortgage to finance energy upgrades to the home being purchased
- The increased monthly mortgage payments are more than offset by the monthly energy savings
Example 2 illustrates how with an energy efficient mortgage (EEM), a homebuyer can afford a more expensive, energy efficient home using the Stretch - Increased Debt-to-Income Ratio.
EXAMPLE 1: ENERGY IMPROVEMENT MORTGAGE
$75,000 VA 30-Year Mortgage at 7.5% Interest
(Source: Energy Rated Homes of Vermont, Inc.)
|Monthly Costs||With $4,000 in energy improvements||Without energy improvements|
|Monthly mortgage payment||$552.38||$524.42|
|Monthly energy expenses||$90.00||$150.00|
|Total monthly cost||$642.38||$674.42|
THE BOTTOM LINE: After making the energy efficiency improvements, the homebuyer reduces his monthly housing costs by $32 - nearly $400 a year - and has a more comfortable and durable home.
EXAMPLE 2: ENERGY EFFICIENT MORTGAGE
2% Stretch - Increased Debt-to-Income Ratio When Buying an Energy Efficient Home
(Source: Energy Rated Homes of Alaska, Inc.)
|Monthly Income||Regular Mortgage||Energy Efficient Mortgage||Increased Purchase Power|
THE BOTTOM LINE: By availing themselves of an energy efficient mortgage, homebuyers who purchase energy efficient homes can get bigger mortgages and better homes!
The institutionalization of energy mortgages into the national mortgage market and their widespread use could mean a significant improvement in the quality of our country's housing stock without a great infusion of government or utility funds. Energy improvement mortgages offer homebuyers of existing homes opportunities to:
- Upgrade the homes they are buying immediately without tapping the family's savings or taking out a higher interest, home improvement loan
- Own a more comfortable home that costs less to heat and cool
- Net a better return when selling because of the higher resale value
- Energy efficient mortgages offer opportunities to:
- Help more lower and middle class American families achieve the American dream of home ownership
- Purchase higher quality and more affordable housing
- Create a market demand and value for energy efficient homes
- Catapult new construction standards above minimum energy codes
The Federal Housing Administration also offers energy mortgages. Find out how they work here.
Regardless of which type of energy loan you decide to apply for, the first thing you'll need to do is contact a certified home energy rater to conduct an energy rating on the home.
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