Details on Energy-Efficient Mortgages (EEMs)
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Who Offers EEMs?
Currently EEMs are secured by two government agencies: the Department of Housing and Urban Development's Federal Housing Authority (FHA), and the Department of Veterans Affairs (DVA). Private secondary mortgage lenders, including the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) also offer EEMS. Countrywide Home Loans, Inc., Norwest Mortgage, Inc., and GMAC Mortgage Corp. are among the independent mortgage companies (they guarantee the loan themselves rather than selling it to a secondary lender) that are getting into the act. There are many differences between the various loans, not the least of which is who qualifies. But the basic principles are the same.
How EEMs Work
EEMs are added on to your regular mortgage. They allow you to make cost-effective improvements which will save you more each month on your utility bill than the cost they add to your monthly mortgage payment. The government-sponsored loans have several special benefits. First, they let you add on the money for the improvements to your mortgage even if this means you exceed traditional loan limits. Second, you don't have to qualify for the additional money. Third, and probably most important, 100% of the cost of the improvements can be financed. Since all improvements must be cost effective to qualify, this means there are no out of pocket expenses. Your mortgage payments go up a little, but your utility bills go down more. You can even realize a positive cash flow. It's like getting paid for improving your home.
The private sector's secondary lenders (they buy loans from the primary lender such as your local bank) have been slower to accept EEMs, but this is changing. Fannie Mae and Freddie Mac are offering EEMs in more and more states. The requirements are a bit different. For example, these conventional lenders do not allow loan limits to be exceeded, and they require borrowers to qualify for any additional money. But even a private market EEM will save you money and improve your home.
And in some states there is an added benefit. Borrowers may have the opportunity to qualify for a larger loan with a lower income through what is called a 2% stretch of the qualifying ratios. Lenders consider the lower utility bills you will have, and then allow you a higher mortgage accordingly. (This is not available everywhere, but is worth asking about.)
Excerpted with permission from No-Regrets Remodeling by Home Energy (1997)