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Energy Efficient Mortgages - Who Offers Them?
By Dale Stouffer
Green mortgages have been around since the late 1970's. President Jimmy Carter authorized them and until recently they have had the backing of Fannie Mae and Freddie Mac. In January of 2007, Fannie Mae discontinued underwriting these mortgages to leave the only backing of them through Freddie Mac. Freddie Mac's program for these mortgages is through their FHA 203(k) rehabilitation loan and a VA loan variation.
Officially, Fannie Mae and Freddie Mac and most mortgage industry professionals refer to the green mortgage as the Energy Efficient Mortgage (EEM). The basic structure of this mortgage program comes in several forms. One option for this loan is that the lender will lend additional money to the home owner to allow the home owner to make energy efficient home improvements. Another option of this loan is that the lender will provide a discount on some closing costs if the home owner if there are energy efficient appliances in the home or being purchased as a result of the mortgage. A third version of this program is when the lender offers to perform some sort of community service such as planting trees in exchange for taking out a mortgage with them.
As mentioned earlier, Freddie Mac through their FHA and VA loan programs still offer the EEM's. For FHA, the loan is available through their rehabilitation loan, or the 203(k) loan. This is a common loan for homeowners who want to use their mortgage through FHA to do home improvements. FHA allows up to $8,000 in energy efficient property upgrades. To qualify for the EEM, the home owner has to pay for a HERS inpection, or a Home Energy Rating Systems report. This report is used to determine the efficiency upgrades as well as being used to determine the monthly savings a homeowner will realize if the improvements are made to the property.
Once the HERS report is complete and home improvement plan is drafted and FHA approves the total package, money is set aside at the loan closing to pay for the work to be completed. This money is held by the title company who does the loan closing and is only authorized to release the money for the project once the work is completed. An FHA inspector or the appraiser on the loan will inspect the completed work to authorize the release of the money held at title.
As far as the VA green mortgage active duty personel, reservists, and retired veterans can get this loan. The eligible borrower can borrow up to $6,000 if the energy upgrades are determined to be more efficient than if the work hadn't been done. As a standard feature of the VA EEM, the homeowner is able to finance up to $3,000 by just showing the costs of the upgrades without proving the efficiency improvements.
With the onset of concern about global warming and the environment many homeowners are looking for ways to save money and have a positive impact on the world around them. FHA and VA still provide a viable option for Green Mortgages. Perhaps, as the cultural conversation about the environment increases, Fannie Mae will reintroduce their program again. For further information on FHA, VA, and other loan programs visit GetPreQualified.com
Article written by: Dale Stouffer. Dale has been a mortgage broker since 1996 and has served on the Pennsylvania Association of Mortgage Brokers as an instructor to other mortgage brokers, and as a education and legislative chair at both the local chapter and state levels. Dale owns GetPreQualified.com, which is a consumer credit and financial services education and product portal.
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