What are Energy Efficient Mortgages and Should I Consider One?
If you are looking for a way to finance a home purchase or refinance that also helps you save money on energy bills, you might want to consider an Energy Efficient Mortgage (EEM). An EEM is a type of loan that allows you to borrow extra money to pay for energy efficient improvements to your home or to buy a home that already meets specific energy efficiency standards.
An EEM can be a conventional loan, an FHA loan or even a VA loan, depending on your eligibility and preference. The main benefit of an EEM is that it can increase your purchasing power and lower your monthly expenses by taking into account the energy savings that result from the improvements. For example, if you install energy efficient appliances, windows, doors, insulation, heating or cooling systems, or even solar panels, you can reduce your utility bills and improve the comfort and value of your home.
To qualify for an EEM, you will need to meet the regular requirements for the type of loan you are applying for, such as credit score, debt-to-income ratio and down payment. In addition, you will need to have a home energy assessment or rating done by a certified rater before the loan is approved. This assessment will verify the current or projected energy efficiency of the home, estimate the monthly energy savings and calculate the value of the energy efficiency measures.
Depending on the type of EEM and the cost of the improvements, you can borrow up to 15% of the home's appraised value to pay for them. You can use this extra money to finance the improvements directly in your mortgage, or to pay off existing energy debt, such as PACE loans. You will have a certain amount of time, usually three to six months, to complete the improvements after the loan closes. Once they are done, an inspection will confirm that they meet the expected standards.
One of the professionals involved in the EEM process is a Home Energy Rater or HERS rater. A HERS rater is trained and certified to evaluate the energy performance of a home using a standardized system called the Home Energy Rating System (HERS) Index. The HERS Index is a scale from 0 to 150 that measures how much energy a home uses compared to a standard new home. The lower the score, the more energy efficient the home is.
A HERS rater can perform two types of assessments: a HERS rating and a HERS audit. A HERS rating is required for some types of EEMs, such as FHA and VA loans. It involves testing and measuring various aspects of the home's energy use, such as air leakage, insulation levels, duct leakage, heating and cooling systems, lighting and appliances. Based on this data, the HERS rater assigns a HERS score to the home and provides a report with recommendations for improving its energy efficiency.
A HERS audit is similar to a HERS rating, but it does not assign a score or require testing. It is more like an inspection that identifies areas where energy efficiency can be improved and estimates the potential savings and costs of doing so. A HERS audit can be used for conventional EEMs that do not require a rating.
If you are interested in getting an EEM and need to find a qualified HERS rater in your area, you can use one of these online directories:
- RESNET which lists Home Energy Rating companies that are members of RESNET
- NEHERS which lists HERS raters who are members of Northeast Home Energy Rating System Alliance
An energy efficient mortgage can be a great option for homeowners who want to save money and energy while improving their homes. By working with a lender that offers EEMs and a qualified HERS rater, you can take advantage of this opportunity and enjoy the benefits of living in an energy efficient home.
Feel free to contact Onega Inspection Services if you are interested in receiving a HERS rating for your energy efficient mortgage. We would love to work with you!