Get a Bigger Loan with an Energy Efficient Mortgage (EEM)

By Sequoia on 05/29/2010 – 4:06 am PDT

The Energy Efficient Mortgage (EEM) offered through the Federal Housing Administration (FHA) and its qualified lenders allows homeowners to receive a larger mortgage to improve the efficiency of a home. Essentially, this mortgage covers not just the initial cost of the property but also the cost of energy improvements. As a result, the loan can exceed standard FHA limits. The FHA provides this option with the understanding that the utility costs of the home will be far lower after improvements, allowing the homeowner to pay more toward a mortgage.

EEM Process
The process to secure an EEM is similar to the process to secure any FHA-insured loan. You must first qualify for a private mortgage loan, and then you must apply for the FHA guarantee. When you are working with an FHA-qualified lender, you can do both at once. The FHA guarantee is a form of insurance on your loan. To qualify, you must be deemed credit worthy. The FHA’s standards are among the highest in the industry. However, the FHA does assist with low down payment options. Through this program, you can purchase a home with as little as 3.5 percent down, and you are guaranteed a fixed-rate mortgage.

EEM Home Inspection

Once you qualify for the loan, the home you are purchasing must also qualify for the energy improvements. The process to qualify a home takes place through an efficiency inspection. Inspectors factor in the various considerations for the property, such as the year it was built, the quality of insulation and the appliances present. Inspectors then carry out a test where air is blown through the home to measure the ducts and ventilation. Ultimately, the inspectors input all of the information into a computer program to generate a Home Energy Rating (HER).

HERS Rating

The Home Energy Rating System (HERS) is an index based on a reference created in 2006. If a home is equal to this reference point in terms of efficiency, the home receives a HERS score of 100. A net zero home, meaning a house that creates all the energy it uses, will score a HERS rating of 0. The home under inspection will be rated somewhere along this scale or beyond this scale. Then, the inspectors will estimate what the home’s HERS rating will be based on several improvements to increase the efficiency of the property. The cost to make these improvements is added to the mortgage.

Benefits of an EEM Loan

Many EEM users are eco-conscious, and they desire to live in a home that has a lower impact on the environment. Even if you are not extremely “green,” there are several fiscal benefits to the larger mortgage. Theoretically, you will be spending the same amount on the home either way, since the extra mortgage will be covered through utility savings. If this is the case, then you will net a gain as a result of the improvements. Homes that are energy efficient sell at higher prices. The updates and changes to the home will put money in your pocket when it comes time to sell.