If you’re in the market for a new Lexington home, there’s a
way to save the environment and some cash at the same time: Consider a “green”
mortgage.
An energy-efficient mortgage (EEM), the umbrella
term for these types of loans, allows buyers to fold expenses for energy-saving
home improvements into their mortgage.
EMs are an option if you’re buying or building a home and
you want to add energy-efficient features, if you’re refinancing a mortgage for
a home you already own and want to add energy-efficient renovations, or if
you’re buying a new home that is already energy-efficient.
The idea is that, in the long run, the money saved on
monthly utility bills will offset the higher mortgage payment. The projected
energy savings from the lower bills could also qualify buyers for a larger loan
amount and a better, more energy-efficient home.
And at the point of resale, homeowners will likely benefit
again, as the energy upgrades can boost the home’s value and attract buyers in
a competitive market.
Improving Your Home’s Energy Efficiency
Green mortgages can be used to finance a range of
energy-efficient upgrades, from weather stripping to new heating and cooling
systems to double-pane windows and solar panels.
A required home energy audit provides recommendations for
energy-saving improvements and estimates of the costs and savings of those
improvements. Lenders use this information to determine how much you’ll save in
energy costs with each improvement.
Fannie Mae, the Federal Housing Administration, and the
Department of Veterans Affairs all offer a version of EEMs. The amount of
energy improvements a borrower can finance varies by program, ranging from
about 5 percent of the value of the property through an FHA loan to around
15 percent with a conventional mortgage. A VA EEM, available to military
personnel, caps energy improvements at $3,000 to $6,000.
Understanding the Green Mortgage Lending Process
While securing an EEM can be fairly simple for the borrower,
it can be cumbersome for lenders unaccustomed to the process of managing the
“work flow” of the energy improvements, says Tonya Todd, senior vice president
of strategic products at Mountain West Financial in Redlands, California. This
may be why they aren’t more common.
“The loan itself is easy; it’s the facilitation that takes
some work,” Todd says. “Lenders that are successful at this will find a local
energy-efficient mortgage facilitator. The facilitator handles everything from
A to Z to ensure a smooth and timely process for all parties.”
The facilitator works with the buyer, the energy rater, the
contractor, the realtor and the lender to keep everything moving to avoid delays.
“After closing, the facilitator will ensure the installation
of the energy improvements are completed,” she adds. “It just makes everything
much smoother.”
So, if you’re interested in pursuing an EEM, go for it —
just be aware you may have to put some effort into finding a lender.
“Niche lenders do offer these programs and do them well,”
Todd says. “However, a lot of lenders do not offer them because they do not
understand the operational component, or they don’t have the support system
internally.”
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