Definition
An Energy Efficient Mortgage (EEM) is a special type of loan that allows homeowners to include the cost of energy-saving improvements into their primary mortgage. These improvements can significantly lower monthly utility bills by making homes more energy-efficient. The EEM considers the projected savings from these upgrades, allowing borrowers to qualify for larger loans and utilize the savings to pay off the improvement costs over time.
Examples
- FHA Energy Efficient Mortgage Program: The Federal Housing Administration (FHA) offers an EEM program that insures loans for properties with energy-saving features such as solar panels, improved insulation, or high-efficiency heating and cooling systems.
- VA Energy Efficient Mortgage: Veterans Affairs (VA) offers EEMs where eligible veterans can finance up to $6,000 in energy-efficient home improvements without additional qualification requirements.
- Conventional EEM: This type of EEM is available through traditional mortgage loan providers and allows for the inclusion of energy-efficient upgrades in the mortgage package.
Frequently Asked Questions (FAQs)
What types of improvements can be financed with an EEM?
Energy Efficient Mortgages can finance improvements such as upgraded insulation, high-efficiency HVAC systems, solar panels, energy-efficient windows and doors, and other appliances that reduce energy consumption.
How does an EEM increase loan qualification?
EEMs allow for higher loan amounts because the expected energy savings can offset higher mortgage payments. Lenders consider these savings as additional income, which can help homebuyers qualify for larger loans.
Can existing homeowners benefit from an EEM?
Yes, existing homeowners can refinance their current mortgage into an EEM to finance new energy-efficient upgrades and reduce their future utility costs.
Is an EEM available for all types of properties?
While EEMs are typically used for residential properties, the eligibility may vary by lender and loan program. It’s best to consult with a loan officer to determine specific eligibility.
Are there any eligibility criteria for EEMs?
Eligibility criteria for EEMs may differ by lender but often involve an energy audit or assessment to determine the potential savings from proposed upgrades.
- Energy Audit: An inspection and analysis of energy use and flows for energy conservation in a building.
- Green Building: A structure that uses environmentally responsible and resource-efficient processes throughout its lifecycle.
Online Resources
- FHA Energy Efficient Mortgage Program
- VA Energy Efficient Mortgage
- Environmental Protection Agency - Energy Efficiency
References
- U.S. Department of Housing and Urban Development (HUD). “Energy Efficient Mortgage Loans.”
- Veterans Affairs (VA). “Energy Efficiency Improvements.”
Suggested Books for Further Studies
- “The Green Home: Energy-Efficient Building Construction” by Forrest Wilson
- “Residential Energy: Cost Savings and Comfort for Existing Buildings” by John Krigger and Chris Dorsi
- “Green Building and Remodeling for Dummies” by Eric Corey Freed
Real Estate Basics: Energy Efficient Mortgage (EEM) Fundamentals Quiz
### What is the primary benefit of an Energy Efficient Mortgage (EEM)?
- [ ] Lower interest rates
- [x] Financing energy-efficient improvements
- [ ] Reduced mortgage insurance premiums
- [ ] Faster approval process
> **Explanation:** The primary benefit of an EEM is the ability to finance energy-efficient improvements, which can lead to reduced future utility costs.
### Can an existing homeowner refinance their mortgage into an EEM?
- [x] Yes
- [ ] No
- [ ] Only if switching lenders
- [ ] Only with a new appraisal
> **Explanation:** Existing homeowners can refinance their current mortgage into an EEM to finance new energy-efficient upgrades.
### What type of loan program insures loans for properties with energy-saving features?
- [ ] USDA Rural Development
- [x] FHA Energy Efficient Mortgage Program
- [ ] Fannie Mae HomeReady
- [ ] Freddie Mac Home Possible
> **Explanation:** The FHA offers an Energy Efficient Mortgage Program that insures loans for properties with energy-saving features.
### Who is eligible for a VA Energy Efficient Mortgage?
- [ ] First-time homebuyers
- [ ] Senior citizens
- [x] Eligible veterans
- [ ] Real estate investors
> **Explanation:** Eligible veterans can benefit from a VA Energy Efficient Mortgage to finance energy-efficient home improvements.
### What documents may be necessary to qualify for an EEM?
- [x] An energy audit or assessment
- [ ] A letter of recommendation
- [ ] Paid utility bills
- [ ] Proof of employment
> **Explanation:** An energy audit or assessment is often required to determine the potential savings from proposed energy-efficient upgrades and to qualify for an EEM.
### What are typical energy-saving features financed through an EEM?
- [x] High-efficiency HVAC systems
- [ ] Decorative enhancements
- [ ] Additional bedrooms
- [ ] Landscaping
> **Explanation:** EEMs typically finance upgrades such as high-efficiency HVAC systems, insulation, and solar panels that contribute to energy savings.
### Can an EEM help in qualifying for a larger loan amount?
- [x] Yes, by considering projected energy savings as additional income
- [ ] No, the loan amount is fixed
- [ ] Only for conventional mortgages
- [ ] Only for new constructions
> **Explanation:** EEMs can help borrowers qualify for larger loan amounts by considering projected energy savings as additional income, which offsets higher mortgage payments.
### Which organization offers information about energy efficiency that would be relevant to EEMs?
- [ ] National Association of Realtors (NAR)
- [x] Environmental Protection Agency (EPA)
- [ ] Occupational Safety and Health Administration (OSHA)
- [ ] Internal Revenue Service (IRS)
> **Explanation:** The Environmental Protection Agency (EPA) provides relevant information about energy efficiency and sustainability, which is pertinent to EEMs.
### What makes an EEM different from other types of mortgages?
- [ ] It has a lower interest rate.
- [ ] It requires no down payment.
- [x] It includes the cost of energy-efficient improvements.
- [ ] It is only available to first-time homebuyers.
> **Explanation:** An EEM is distinct because it allows for the inclusion of energy-efficient improvements in the mortgage amount, unlike typical mortgages.
### How does improving energy efficiency reduce utility costs?
- [ ] By providing rebates on bills
- [x] By lowering energy consumption
- [ ] Through government subsidies
- [ ] By switching utility providers
> **Explanation:** Improving energy efficiency reduces utility costs primarily by lowering the energy consumption through better insulation, efficient systems, and other upgrades.
