The Energy Efficient Mortgage

While you explore the refinancing options available to you, you might want to consider borrowing more than the amount needed to pay off your existing mortgage. You can use the extra money to make energy-efficiency home improvements that might help you save a significant amount over time. If you consider that the interest paid on your mortgage is most likely tax deductible and switching to energy efficient appliances will immediately lower your monthly bill – you might see savings sooner than you think.

What is an Energy Efficient Mortgage?

An energy efficient mortgage is a type of additional mortgage that can be added to an already existing home mortgage. With this type of federally recognized loan, the borrower is eligible for unique benefits related to the purchase of an energy efficient home or energy efficiency remodeling. Benefits include eligibility for financing energy-efficiency measures as a part of your mortgage, updating your home with newer more efficient features and appliances, stretching debt-to-income qualifying ratios on additional loans, and qualifying for a larger loan. When debt-to-income ratios improve, a larger percentage of the borrower’s monthly income can be allocated to the mortgage payment. In short, that means the buyer has more borrowing power although his or her income has not changed.

How do I know if my home is energy efficient?

Before trying to gain approval for an energy-efficient mortgage, have a certified home energy rater come to your house and conduct an energy audit. The audit proves to the lender that the home has areas that could benefit from improved energy efficiency and lower the monthly power bill. The cost of improvements needed in these specific areas found to be energy inefficient can then be added to your mortgage.

The U.S. Department of Energy established guidelines for companies offering Home Energy Ratings. Rating should be in the form of a numerical score from 1 to 100. An additional rating based on a range of one to five stars may also be given as well as an estimated energy cost. A higher score indicates greater efficiency. The rater will also identify upgrades that are considered “cost effective.” These types of upgrades will save more money through energy savings than they cost to install. A Home Energy Rating conducted by a certified professional will usually cost between $100 and $300. The cost of the rating may be financed as part of the mortgage, covered by the lender, or paid for by the owner.

Am I eligible for an Energy Efficient Mortgage?

Any buyer who can qualify for a home loan can qualify for an energy efficient mortgage. Energy efficient upgrades can be done on most homes, and the loans are available to anyone regardless of location, home value, or existing utility set up. Energy efficiency mortgages can be added to government loans or conventional loans. Your lender will determine your exact benefits based on your home energy rating. In general, an energy efficient mortgage is available for older homes that qualify for upgrades as well as for homes not requiring upgrades in some cases. New construction can also qualify, check with the U.S. Department of Energy, the Alliance to Save Energy, or the Federal Citizen Information Center for more details.

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