Energy Efficient Mortgages

Investors and developers who provide energy efficient homes can benefit not only from a “green” image that sets their properties apart from the rest but also from a …

Investors and developers who provide energy efficient homes can benefit not only from a “green” image that sets their properties apart from the rest but also from a wider buyer pool, thanks to energy efficient mortgages (EEMs) that recognize the savings an energy efficient home provides.

Conventional EEMs can be offered by lenders that sell their loans to Fannie Mae and Freddie Mac, according to ENERGY STAR, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy. Fannie Mae and Freddie Mac are government-sponsored privately-owned corporations that make up a large portion of the U.S. secondary mortgage market.

“Conventional EEMs increase the purchasing power of buying an energy efficient home by allowing the lender to increase the borrower’s income by a dollar amount equal to the estimated energy savings,” according to ENERGY STAR. “The Fannie Mae loan also adjusts the value of the home to reflect the value of the energy efficiency measures.”

By increasing the income recognized in the borrower’s debt-to-income ratio, the lender makes it possible for the borrower to afford a more expensive home than they could otherwise.

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EEMs are also available for FHA and VA loans, according to ENERGY STAR.

Homes that qualify for energy upgrades are also candidates for EEMs, according to the Department of Housing and Urban Development (HUD). “Many homes qualify for energy upgrades….With the EEM, lenders recognize the savings the upgrades will bring.”

“Borrowers may use these potential savings like extra cash, and add the cost of upgrades into the mortgage, paying them off easily as part of the monthly mortgage payment. Once the upgrades are installed the potential savings turn into real savings,” according to HUD.

The environmentally-friendly aspect of energy efficient homes is an increasingly attractive draw for consumers, as green products and environmental issues become more mainstream.

Consumers say they expect to double their spending on green products and services in the next year, totaling $500 billion annually, or $43 billion per month, according to the 2007 ImagePower Green Brands 2.5 Survey released Sept. 28, 2007, by Sustainable Life Media.

Consumer perceptions are steadily shifting from associating the color green with environmentally-friendly products to equating green with saving money and caring for self and society, and 90 percent of Americans agree that there are important green issues and problems, according to the survey.

EEMs that increase the purchasing power of homebuyers and that make them feel good about purchasing an environmentally-friendly home may be beneficial to rehabbers and developers looking for ways to make their properties stand out in a slowing national market.


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