Energy Mortgages Can Help You Finance Your Eco-Friendly Home

February 17th, 2011 | General

As more energy efficient homes are built across the US, mortgage lenders are starting to follow suit, allowing borrowers to receive credit for their home’s energy efficiency or energy improvements they plan to undertake.

Read on to see if an energy mortgage might be the right choice for you.

Two Types of Energy Mortgages

An energy efficient mortgage increases the home buying power of borrowers by crediting a home’s future energy efficiency in the mortgage itself. This means that a homebuyer could have a greater ability to buy a high quality, eco-friendly home initially because the expense to heat and cool the house is lower both at the outset and in the future. Fannie Mae, Freddie Mac, FHA and VA all have energy efficiency mortgage purchase and refinancing options available.

For homes in which major energy efficient improvements are needed, an energy improvement mortgage allows the money that is saved in monthly utility bills to finance those improvements.

To measure a home’s energy efficiency, a lender will assign a home energy rating. This involves an analysis of a home’s construction plans and onsite inspections, such as a blower door test to test the leakiness of the house and a duct test to test the leakiness of the ducts. This helps to calculate both the present and the anticipated monthly energy savings. If your home is LEED rated or has Energy Star Certification, most likely these tests have already been done as part of the certification process.

How Energy Mortgages Help Borrowers

There are several benefits for borrowers who secure an energy efficient mortgage. The pool of qualified mortgage applicants is increased by offering the energy mortgage option. A recent study conducted by the Environmental Protection Agency (EPA) showed on average 6.8% more families would be able to qualify for a mortgage if an energy efficient mortgage option was made available to them.

Not only are more people able to qualify for mortgages, the sheer amount they can borrow is also increased because the estimated energy savings are added to the borrower’s income. An energy efficient mortgage also allows borrowers to include the costs of their energy improvements in the total mortgage amount. One hundred percent of the energy improvements, which is typically up to 15% of the total value of the home, can be paid for over the life of the mortgage, which means the borrower’s cash can be used for more immediate expenses.

Another benefit to borrowers is that the market value of their home will increase. Depending on the type and degree of energy efficient improvements the home undergoes, the added value can be anywhere from a few thousand dollars up to $10,000.