-Energy Efficient Mortgages -
Many of us know that if the home is not up to code, properly insulated, has a poor air conditioning unit or heater, that it could cost you more money monthly. And keep in mind, there is a longer list of items such as lighting, appliances, etc, etc, that could reduce your expenses. Overall, there are specific types of mortgages that allow you to incorporate the costs of these upgrades into your mortgage, without coming out of pocket with extra monies. And this can be done not only with purchases, but with refinances. And to answer the question, what kind of mortgages? This could take place with FHA loans, Conventional loans, and VA loans. But I am going to go over the particulars when using a FHA loan.
So what is the name used for this type of mortgage? EEM, better known as Energy Efficient Mortgages. Unless you are having a new home built that could be an energy efficient home, in many cases, the older home probably won't be up to the current standards, which could cost you hundreds of dollars monthly.
My question to you.... Are you part of the GREEN family now, because not only did you save money, improve your home, but because you are helping the environment? As stated above, this can be done without added expense, except for the home energy rating report.
Realtors - How about that this is a great way for you or a seller to market their home also. Especially for those homes that are 5 years or older.
HUD
states that Congress started a pilot program in 1992 demonstrating the use of energy efficient mortgages, known as EEM's. (Energy Efficient Mortgages) FHA has adopted this into their financing options which allows a borrower to :
- save money monthly
- incorporate the improvement costs into the mortgage
- these improvements are installed after the loan closes
- this program allows you to use normal FHA guidelines with FHA mortgages
EEM's recognize that reduced utility expenses will allow a homeowner to pay a higher mortgage payment to cover the cost of the energy improvements that were financed into the mortgage. A main reason behind the EEM's program, it offers homeowners who couldn't initially afford the cost of these energy saving improvements out of pocket, giving them the chance to finance them. Thus cutting down on pollution and making the environment a better place to live. And why bring this up again? For 2 reasons.
- Not everyone thinks about this or knows about these programs (and)
- because HUD just released a new mortgagee letter on June 10th, 2009. - ML 2009-18 - The old way was not to exceed $8,000 or $4,000 of improvements, whichever was greater. Now HUD states that : The maximum amount of the portion of the EEM for energy improvements is the lesser of 5% of:
- the value of the property, or
- 115% of the median area price of a single family dwelling, or
- 150% of the conforming Freddie Mac limit.
So overall, HUD increased the dollar amount that is allowed, depending on which category you fall into.
Eligibility Requirements
- Properties that are eligible are One to Four unit existing and new construction properties.
- Borrowers are approved through the normal FHA mortgage guidelines for obtaining a mortgage.
- The cost of the energy-efficient improvements that may be eligible for financing into the mortgage is the lesser of 5 percent of the property's value, depending on 3 different equations. Please refer to these changes above.
- To be eligible for this mortgage, the energy efficient-improvements must be cost effective, meaning that the total cost of improvements is less than the total present value of the energy saved.
- The cost of the energy improvements and the energy savings must be determined by a home energy rating report which is done by a home energy rating system (HERS) or energy consultant. The HERS report usually costs from $150 to $350 and can be paid by the seller, the buyer, or sometimes included into the mortgage.
- The energy improvements are installed after the loan closes. The money is placed into an escrow account and is released once an inspection verifies the improvements are completed and that the savings will be achieved.
- Because of this program, the final loan amount can exceed the maximum mortgage limit by the amount of the energy-efficient improvements. Here is a list of the FHA max mortgage limits.
EXAMPLE :
|
XXXXXXXXXXXXXXXXXXX |
New Home/Purchase Price |
Same home w/ energy cost of improvements |
|
Purchase Price |
$250,000.00 |
$250,000.00 |
|
Loan Amount |
$245,471.00 |
$253,471.00 |
|
Cost of Energy Improvements |
|
$8,000.00 |
|
Monthly payment at 5.5% - 30 yr |
$1,393.76 |
$1,439.18 |
|
Monthly Payment for electric/gas/ etc, etc |
$375.00 |
$253.00 |
|
Total Monthly payment include (Mtg Payment & electric bill) |
$1,768.76 |
$1,692.18 |
|
Monthly Savings |
|
$76.58 |
Asterisk *-- MIP now varies depending on credit scores. FHA Mortgage Insurance One-Time MIP
** -- Monthly payment does not include taxes or homeowners insurance. Just Principal & Interest (P & I)
*** -- Mortgage interest rate is just an average, depending today's market, points, and or costs.
**** -- As you can see, it's not a huge savings, but it does add up. Just in 1 year only you saved $918.96. And the cost of the energy improvements that were added onto your mortgage now become a tax write-off.
***** -- My examples in the cost of improvements and your monthly bills, will vary depending on several different factors.... such as age of air conditioner or heating, lighting fixtures, etc, etc. And also depending on what you pay per month. I only used these figures as examples.
Along with the FHA loans for these EEMS - Energy Efficient Mortgages, the VA(Veterans Administration) and FNMA / FHLMC also back these types of programs with their own guidelines.
Department of Energy (DOE) and HUD established a joint response to energy efficient housing.
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Experience & Knowledge at its BEST !!!
_________________________________________________________________________________________
For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!
Copyright © 2009 by Jeff Belonger
Hi Jeff: Good post but you have a little HTML issue going on in the middle of it!
:)
Interesting post. Sellers that offer energy efficient homes have a definite advantage.
Follow me on Twitter: http://twitter.com/roykelley
Jeff--Good information on a little known aspect of FHA mortgages! You are such an excellent resource!
the energy efficient-improvements must be cost effective, meaning that the total cost of improvements is less than the total present value of the energy saved."
This sounds more like double pain windows and 2 X 6 insulated walls that what normarly comes to mind when people say "GREEN!"
Bill
Jeff. I can honestly say that I have never seen a listing describing energy efficient anything other than builder listings.
I think that listing agents are missing a lot. TOTOH, best that they not get to descriptive because it could turn out to be as risky as the square feet matter.
This post is very informative.
Thanks.
Great post, Thanks for the timely relevant information
This is a great program - I'm sure you know it can also be used in conjunction with the FHA 203k rehab loan as well.
Jeff, In the past, lenders I spoke to did not want to do EEMs because they said they were too time consuming. When I am on a listing appointment, one of the first things I ask, is if the home is energy efficient. Also, the National Association of Homebuilders in offering a Certified Green Professional designation for building professionals and real estate agents. Thanks for the great information!
I have had several people complain to me when I went and bought florescent light bulbs to replace the incandescent bulbs I used to use...they last for about 5 years and consume less than half the energy of those regular bulbs...... PLUS they give the same amount of light as the bulbs they are replacing.... over the lifetime of those bulbs they are saving a LOT of money!!!
It is just a start....BUT I do what I can.....
=-)
Hi Jeff -- Good information to know as higher energy costs are here to stay...and stay...and stay...
That is very good info, Jeff! I had heard of the similar mortgage options that allow for repairs to the property; however, I had not heard of this particular one based on energy efficiency.
First I've heard of a mortgage like that...it's a great way to market a home. You right the savings a month is small but a over a year that see the difference on much the homeowner will save..it's great tool to use in listing presentations as well.
Jeff I had no idea (or maybe no memory) of this loan at all. I'm going to run this by our lenders and see if they're familiar. Great information. It's kind of like the 203K but different. You could use the 203K for the same energy isses, correct? What would be a better way to go? EEM or 203K.
Jeff, Thanks for the post. In Northern Ohio it is rarely used and I can not say exactly why. I suspect finding lenders that will allow the escrowing of the funds for the EEM.
Also, any reason you had this in your post?
Asterisk *-- MIP now varies depending on credit scores. FHA Mortgage Insurance One-Time MIP
Did I miss something. Is this still in effect for EEM's?
Jeff,
I recently had one of my buyers purchase an FHA home here in California and she got the EEM add-on. It was a breeze. A crew of contractors and inspectors came on-site and the same day she got a complete list of possible energy efficient improvements that she chould take advantage of. It's a GREAT selling tool when there may be no central HVAC, dual pane windows, etc. All the information was provided on an item-by-item bases so she could either take the recommended package, or pick and choose what she wanted to have done.
I mention it to all my clients now.
Jeff
Jeff,
I've seen it on the FHA side...they want to ensure certain items are within guidelines during the inspection... as far as another subject goes....the only thing I've done to my home is add solar panels to save on my cost of heating my pool with gas in the winter...it's a one shot cost as long as none of the parts go bad...great for the environment too.
Jeff,
FYI there is a new kid in town concerning solar pool heating that is making serious waves across the pool and spa industry. This nifty solar pool heater, heats the swimming pool water by extracting the hot air inside the attic. By utilizing the hot attic air to heat the swimming pool it cools down the home reducing the demand for A/C, typical energy bill reduction is 20%
If you are interested just email me and I will forward you the information
GREAT information. I am so glad to see that you are on the GREEN band wagon! We have studied these loans in my various "green" designations but I have yet to be able to put them to use. I hope to do so in the future. You truly are the expert!
MATT.... . thanks and I fixed that within 30 seconds of posting this.
ROY.... . I would agree if a seller could offer this. If they had some type of financing plan drawn up for buyers to see, which could make their house more desirable and sell-able.
TERI.... . this is something that most loan officers don't know about and I believe could increase more sales and or make it cheaper for buyers on a monthly basis. And thank you very much for those kind words.
WILLIAM.... . there is so much more than just windows ... but I am sure in many cases, depending on the windows, this alone could make a huge difference in savings.
LENN.... . I think a listing agent could make the home sound more attractive if they have some of this mentioned, or show a plan of action. Could it be risky if mentioned? Not sure about that... In any case, thanks for the compliment.
GUY.... . my pleasure and thanks for the compliment.
DAN..... . I agree, that this can be a great program. But in regards to the 203-k loan, if you were going to make your home green, you could use the 203-k loan, but to also do other things that weren't green. In this case, adding energy efficient materials and such. 203-k loans are just a tad more in price and depending on the amount, could have a few more fees. At least with the EEM loan, you don't have any draw fees. So if I was just going to add energy efficient items, I would go this way, not the 203-k way. Hope this helps some. thanks
These are not know by many loan originators. I am glad you did this post.
Jeff, thank you, fantastic information, I will have to study up on this.
More excellent, comprehensive information on FHA mortgages. And on yet another program that we wouldn't otherwise know about. Cool!
I don't see any risk to mentioning energy savings features in a listing. The costs associated with energy saving features is in the instalation, not in the existance.
Of course, if a home owner incorporates energy saving features and then wants to recapture their costs in the resale price, the home won't sell. To date, there is no return for energy saving features beyond the saving of costs to operate.
I believe that featuring energy saving components of a home would help sell the property. First of all, few homes have any. It would distinguish the property. As long as the price isn't higher than market.
Great article! You keep the good info coming
Jeff - great info on this, thank you.... I am pretty clueless in this arena, so if you don't mind, can you give me a brief on how these mortgages will work for new construction, specifically green construction? My client is a green builder at the moment, and they looked into it a while back and it proved to be rather costly and took too long, which wouldn't be good.... Did the parameters changed?
Email me if you can, since I doubt this would be of general interest... :-)
WANDA.... . ouch.. you said, "In the past, lenders I spoke to did not want to do EEMs because they said they were too time consuming."
HOW SAD.... first off, whatever happened to helping the borrower out, making sure that they got the best deal. Secondly, what idiot lender or loan officer would even say that to a realtor? Thirdly, they aren't time consuming. It just shows me that the loan officer never did one and just assumed... OR, assumed they are like a regular 203-k loan, which they aren't. With EEM's, there are only like 2 additional forms and just an extra 2 steps, and that's basically it. I think this can be a great program, if the house has some age to it and hasn't been upgraded. thanks
HERB... . it is just a start. But I am semi confused. What were people complaining to you about? thanks
CHRIS.... . yes they are to stay. If you can cut any corner, you will come out ahead. thanks
ERIKA.... . this is just an easier method outside the 203-k loan or the 203-k streamline loan. Both of those mentioned are a tad higher in price. So if you are only going to upgrade/repair anything energy efficiently, then the EEM loan would be better in my opinion.
JIMMY... . yes, it can be a great tool. And sure, the savings aren't great, but it does add up. And one other key note, it can help sell your home down the road.
ANNA.... . yes, you could use the 203-k loan for this same stuff. But please read my comment to Erika. thanks
TIM.... . I would assume you haven't heard about it up your way because not many know about it. It's been a program for a long time now. People just do and learn the basics. And about the MIP? It was just a reminder that this changed back in October of 2008, for January 1st, 2009. Because I have come across some people that think the old MIP is still out there. thanks
Jeff, Maybe I am still consfused. The link references the CS and LTV Based MIP Premiums. We currently use the 1.75% with a .55/.50 Monthly.
I think you wanted this link instead. New FHA Upfront Mortgage Insurance Premium update.
Wow!! Jeff this is awesome information!! I did not know about this at all but with all the homes in San Antonio in need of "green" improvements...what a great concept!! I definitely need to learn more about this!! Thank you so much for sharing!!! ;) you rock!!