Eco-Friendly, Energy Efficient Renovations (and how to FINANCE them)

Energy Efficient Mortgages
Energy Efficient Mortgages. erhui1979 Getty Images

The Energy Efficient Mortgage (EEM) has been around for decades but remains embroiled in anonymity.  Rarely used, mostly due to lack of knowledge on the mortgage lender side, the Energy Efficient Mortgage has gotten an undeserved reputation of being completely unavailable or simply too difficult to pursue.

Neither is true.

EEM’s can be used standalone on new home purchases and refinance transactions OR it can be used as an add-on one to a traditional purchase mortgage obtained from FHA, Fannie Mae, Freddie Mac or VA.

With recent improvements to the program, more and more potential buyers and current homeowners are exploring it as a way to finance green improvements directly into their mortgage loan. However, that is not the only way to use your mortgage to go green. Let’s discuss all of the mortgage options, starting with the EEM.

An EEM (Energy Efficient Mortgage) can help you purchase an energy efficient home. The EEM recognizes that energy efficient homes cost homeowners less to operate on a monthly basis than standard homes because they use less energy. Home-buyers who choose energy efficient homes can afford to spend more on their mortgage loan because they will likely spend less on their energy costs.

Since energy efficient / green homes cost less to operate, the energy efficient mortgage allows for higher than normal debt to income ratios and small increases in loan amount versus appraised value.

In terms of bang for the buck, there are a ton of minor improvements that can yield major results.  Simple weather stripping, sealing, and insulation are often the most cost-effective path to energy savings. The best way to determine what your home needs is through an Energy Audit or HERS (Home Energy Rating Report).

To find a qualified Energy Rater in your area the best place to start is at RESNET.us - which specializes in providing service providers and information on energy efficient mortgages and green renovations nationwide.

In addition to the minor upgrades and renovations you can do to ensure energy efficiency, there are also a number of more significant renovations that one can do to ensure efficiency.

From super efficient HVAC and AC units  to tank-less water heaters and even solar panels; the list of value adding, energy saving renovations is substantial and vast. If you are like many homeowners and potential homebuyers finding the upgrades you need is not the problem, paying for them is the issue.

Green homes cost less to operate, create less pollution and demand a higher price on resale. Green housing uses less energy, less water and offers improved indoor air quality. The latter being an important fact for families with allergy and asthma problems.

Energy efficient homes also improve outdoor air quality by creating less pollution. The average home will produce twice as much greenhouse gas pollution as the average car. Reducing the amount of energy used in a home can drastically decrease the amount of pollution created to generate the electricity for homes.

Reduced energy bills, improved comfort, helping the environment and a higher resale value; just a few of the reason exploring green and energy efficient renovations make sense.

The issue of eco-friendly sustainable housing is one of economics, both personal and national, not politics. In addition to their indoor and outdoor environmental benefits, green homes demand a higher resale value and fewer days on the market too!

Just because the EEM is the only specific mortgage option does not mean that you can’t use other renovation mortgage options, like the 203k and HomeStyle, to renovate green.  

When used in conjunction with an Energy Efficient Mortgage the renovation loan combo provides a powerful mortgage loan combination.

Whether you used an energy efficient mortgage product or not, it makes sense on nearly every level to weigh sustainable, efficient improvements when considering a new home purchase or renovating your current home.