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The Basics to an Energy Efficient Mortgage

The Basics to an Energy Efficient Mortgage

This guest post is by Michael Ciocca of Total Mortgage.

By now, I am sure you are aware of all the benefits of going green, whether it is better health, lower utility bills, or the great feeling of knowing that you are helping to impact the earth in a positive way. Did you know your passion for green living could help you qualify for a larger home loan? Thanks to Energy Efficient Mortgage offered by the FHA, your dream green home may be a reality.

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In order to qualify for an Energy Efficient Mortgage, the property you are interested in must first get a Home Energy Rating Systems report.  This report will be prepared by a professional Energy Rater, and will factor the current appliances, building materials, local climate and utility rates in order to rate your home and calculate energy costs.  The house will then receive a rating, on a scale of 1-100, the lower the score, the more energy efficient the home.

An energy efficient house can often help you save money every month even with a large mortgage. For example, you are interested in an energy efficient home that is more expensive than the other homes you have been looking at. The energy efficient home has average energy bill of around $90 a month, while the other houses average around $140. The energy efficient home has a mortgage of $1,040 and the other house costs about $1,000 a month. When you add the energy bills, the energy efficient home is $10 cheaper a month. In most cases, your savings will be much higher than this example.

Is your dream home not energy efficient? Not to worry, as Energy Efficient Mortgage can also help you with that.  When the Energy Rater compiles his report, he also makes suggestions that can help the home to achieve a better energy rating. If in the end, the upgrades will pay for themselves through savings on energy bills, you can factor these upgrades into your mortgage. You will then pay your mortgage regularly with the upgrades factored in, giving you an easy way to help make your house green. In addition, this program is available for people that are refinancing, giving you the funds you need to upgrade an old house.

What does this mean for the prospective home buyer? It means that when everything is taken into consideration, you can actually qualify for a larger mortgage. Borrowers can use the FHA mortgage program in combination with an EEM to get a loan that is higher than what is normally allowed. For example, a home buyer who purchases a home for $200,000 with 3.5% down will then have a mortgage for $193,000. But if that buyer can show that $5,000 in energy efficiency upgrades will save the buyer money each month, that buyer may be able to have an extra $5,000 added to their mortgage to finance those upgrades. So the new loan would be $198,000 even though that is 99% financing. So remember, the next time you are looking to refinance or buy a new home, going green always has its benefits!

For more information on EEMs and to find qualified lenders, visit http://portal.hud.gov/hudportal/HUD.

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