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Green Mortgages: Saving Money and the Environment

June 30 2008

According to the Environmental Protection Agency, the average homeowner spends close to $1,300 a year on utility bills in the United States. By making energy-efficient home improvements, you can cut this cost in half (depending on the nature of the improvements and the climate of your hometown). You can also get a break on your mortgage, courtesy of the federal government.solar panel

The Federal Housing Administration (FHA) runs an initiative called the Energy Efficient Mortgage (EEM) program that encourages homebuyers to go green. Launched as a pilot in 1992, the EEM program went nationwide three years later. According to a recent report by the U.S. Department of Housing and Urban Development (HUD), the FHA insured 26,000 EEMs in 2003.

Energy Efficient Mortgages (also called “green mortgages) have three functions: they are designed to encourage energy conservation, reduce pollution and make homeownership more affordable. EEMs apply to new and existing homes.

The EEM program is one of several initiatives from the FHA that insure mortgage loans, thus encouraging lenders to give mortgage credit to people who might not otherwise qualify. Only FHA-approved lending institutions, such as banks, savings and loan companies and mortgage firms can make loans that are covered by EEM insurance.

You can apply to the EEM program if you qualify for the FHA’s income requirements and are able to make the appropriate monthly mortgage payments on the property you have your eye on. The value of your energy improvements and estimate of energy savings are determined via a “home energy rating system”(HERS).” A simpler way to tally your energy savings is to hire an energy consultant to look over your house. You can include some of the cost of this energy inspection into your mortgage.

Homebuyers can’t just turn the thermostat down and expect to qualify for an EEM. Your energy saving improvements have to be cost-effective. They might include putting in replacement windows, energy-efficient appliances, a solar hot water heater, etc. The cost of the home improvements has to be less than the total dollar value of energy saved over the lifetime of the improvements.

The amount of improvements eligible for financing as part of the mortgage is five percent of the property’s value, not to exceed $8,000. For a single-family home, the maximum mortgage limit is $160,950 plus the expense of eligible energy efficient improvements (limits may vary across the country) (source: FHA).

Getting an EEM means you don’t have to apply for an additional loan for energy improvements when buying a house. A recent study by the Joint Center for Housing Studies estimates that 250,000 new homebuyers could qualify for an EEM on an annual basis.

Applications have to be submitted to the local HUD office in your region through an FHA-approved lending institution.

For more info:

U.S. Department of Housing and Urban Development information on EEMs
http://www.hud.gov/offices/hsg/sfh/eem/energy-r.cfm

See DOE/HUD Initiative on Energy Efficiency in Housing: A Federal Partnership, Program Summary Report
http://www.huduser.org/