How to Get a Loan for a Green Mortgage
Green Mortgages and Your Energy-Efficient Home
You may be dreaming of that beautiful old Victorian in the historic district that’s on the cusp of a major revitalization, but that fantasy may be dashed once you start crunching the numbers. The drafty windows and old heating system will run your utility costs through the roof. Replacing the gas-burning furnace and scraping the lead paint will cost far more than you have saved for the down payment.
One possible solution for this and other houses that need improvements to make them more energy efficient and eco-friendly is to get a so-called “green mortgage.” Not only will the mortgage help you make your house green, but it will also give you more green.
What Are Green Mortgages?
A green mortgage is often referred to as an “energy efficient mortgage,” or EEM. A green mortgage provides additional money for homeowners to make improvements on their house so that it is more energy-efficient. Borrowers who are eying a home that already has energy-efficient features installed may also qualify for an EEM, allowing them to afford a bigger or more expensive house.
A green mortgage is a primary, not a secondary, mortgage. That means that the additional amount is rolled into the primary loan, and borrowers only have to make one monthly mortgage payment.
How to Qualify for a Green Mortgage
In most cases, homeowners who qualify for a traditional mortgage will also qualify for a green mortgage. Just like with a traditional mortgage, there are several different lenders and programs for green mortgages, and each have their own criteria for eligibility. For example, an FHA EEM allows lenders to borrow up to 5 percent of a home’s value or $4,000, whichever is greater.
Loans that are backed by Fannie Mae and Freddie Mac may allow buyers to borrow up to 15 percent of the home’s appraised value. Buyers should talk to their lenders about what loans are available, and then they should shop around to see who can offer them the best terms.
What Can be Purchased with a Green Mortgage
Though homeowners may identify several improvements they would like to make to improve energy efficiency, they have to get their purchases approved and verified in order to pay for them with loan funds. A professional energy rater will come to the borrower’s new home and create a Home Energy Rating System, or HERS report, which will evaluate how energy efficient the home is and what areas need improvement. The report will include recommendations for energy upgrades and provide a cost estimate for the repairs. The report also includes estimates on energy usage and costs. Possible improvements include new windows, heating and cooling units, insulation and roofing.
Money from the green mortgage is put into an escrow account, and borrowers have between 90 and 180 days to make the improvements. Once an inspection verifies that the improvements have been made, the money is paid out of escrow.
Benefits of Green Mortgages
There are many benefits to green mortgages in addition to the obvious energy savings over many years in the home. Some tax credits may be available for many energy efficient improvements, which can result in a big return each year. In addition, home owners can deduct the interest they pay on their mortgages, which will provide some cost savings over using credit cards or other types of loans to finance the energy improvements.
Ultimately, when homeowners decide to sell their home, the energy improvements will also result in a larger selling price, helping to increase the return on their investment. Taking out the money to get a green mortgage results in savings every month, which compound to bigger savings over the years and culminate in a larger payout when the homeowners decide to leave the home.
Green mortgages will result in not only improvements for the environment, but also in improvements for a homeowner’s bottom line. Those who are already living in a home can look into a green mortgage when they are ready to refinance, as well, if they would like to make energy improvements at that time.
Have you applied for or received a green mortgage to make energy improvements on your home? Share your experiences and feedback in the comments!
Trey Conway is the main content writer for www.mortgagecalculator.biz. A website that helps people calculate how much home they can afford. He has been interested in mortgages and creating websites since he graduated from Appalachian State University. You can reach him anytime at his Facebook page https://www.facebook.com/trey.conway.758.