This is a type of loan that credits a home based on its current energy efficiency. In order to be deemed energy efficient, a tool, appliance, heating, or cooling system will simply use less energy than it’s basic, less efficient, counterpart. An EEM gives lenders the power to extend the borrower’s debt-to-income qualifying ratio, so that he or she may take out a larger loan for their home.
To qualify for an EEM, a home energy rater will conduct an official energy rating of your home. This rating will be based on a scale of 1-100, with a lower score representing a more energy efficient home. Obviously, the lower your score, the higher your chance of getting your EEM loan approved.
Insuring Your Mortgage
Federally insured mortgage programs sponsor both EEMs and EIMs. The Federal Housing Association (FHA) and Veterans Administration (VA) are among the more popular insurers today.
Conventional EEMs
This is the basic option for taking out an EEM. The lender will have a certain amount of power to adjust the borrower’s income by a dollar amount that is equal to the estimated energy savings on the house. In return, the borrower will be allowed to take out a larger loan. This option is especially beneficial if the borrower does not have a lot of disposable cash.
FHA EEMs
A FHA EEM provides mortgage insurance to a borrower who intends to purchase or refinance a home, and to incorporate the costs of energy efficient improvements into their mortgage. The borrower does not have to qualify for additional money, and is not required to make a down payment on the loan.
The restrictions put on the FHA EEM loan amounts can be altered based on the cost of energy effective improvements that you make to your home. The maximum amount that this alteration can fluctuate is whichever of these options is smallest. The lesser of 5% of:
The value of the entire property
115% of the median area price of a single family home (the average price of similar homes in your area)
150% of the conforming Freddie Mac limits
Patrick Merryman writes about mortgage rates for the Total Mortgage Blog and also writes for the Total Guide.
