December 18, 2008

Energy Efficient Mortgage – New options when buying or remodeling

 I am always looking out for ways to save money while also saving energy. Now there are new mortgage options, often called Green Financing, available to home buyers and current homeowners. Whether you want to buy an energy efficient home or want to convert an existing home into an energy efficient marvel, here is how these new financing options can help.

Buying an already energy efficient home: Since you will save on your monthly utility costs compared to a standard home, you can qualify for a larger loan. Energy Efficient Mortgage (EEM) standards allow for a 2% increase in your qualifying ratio. For example, if you earn $5000/month, the typical mortgage ratio would be 28% of your income for a maximum monthly payment of $1400 and a total loan amount of $178,850. An EEM mortgage would allow a ratio of 30% for a maximum monthly payment of $1500 and a loan amount of $191,600. If you don’t need the extra buying power, you can get a lower interest rate instead (at least .125%). This program is available for homes that are certified by Energy Star or Built Green and also homes with an energy audit by a licensed energy rating professional called a HERS rating.

Buying a typical home and converting it into an energy efficient home after the purchase: In this scenario, you buy a standard home and immediately after the closing, retrofit the home with energy efficient features. You have an energy audit done and get bids for the work needed. The lender loans you the amount to buy the home and make the retrofits. The additional money is held in escrow until the work is completed and the lender pays your contractors for the work from that escrow account. A discounted interest rate may be available for this program too.

Remodeling your current home to make it more energy efficient: This scenario is available to homeowners who borrow at least $50,000 for a remodel/construction loan. Again, the funds for the improvements are held in escrow by the lender and paid to the contractors as the work is completed. The interest rate should also be lower than a standard construction loan.

The catch: Most of these loan programs will require a home energy audit to verify that the home is already energy efficient or what improvements are necessary to increase efficiency. The lender will usually pay for at least part of that additional cost.

The Boulder office of Countrywide Home Loans (soon to be Bank of America) has a “Green Team” that specializes in these products. You can also talk to your current lender and ask if they offer these mortgages as well. Additional info can also be found at EcoBroker.com

blog by elephant’s realtor Liz Benson

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