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Financing Your Energy Efficient Home


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TERMINOLOGY

An energy efficient home is good for the environment and can provide a cost saving to the homeowner. The main benefit of an energy efficient home is the reduction of utility costs. In addition, energy efficiency can provide flexibility in obtaining an energy efficient loan. The incentives offered by both government programs and traditional lenders can work in your best interest. If you are looking to finance an energy efficient home, there are two options available to you.

Mortgage Types

When looking to finance an energy efficient home, there are options available through lenders and the government.  There are two types of energy efficient mortgages (EEMs) available. The mortgages are for new homes and existing ones. These EEMS allow you to decide whether you want to purchase a home that already meets the energy efficiency standards or purchase a home that require improvements, in order be deemed as energy efficient.

If you are purchasing a home that is not already energy efficient, there are home improvement loans available to make the changes. You may also consider talking to your lender to have these costs included into your mortgage. The improvements made to the home will be worth the savings and eventually be profitable investment.

Qualifying

In order to qualify for the energy efficient mortgages, the home has to have a home energy rating done by certified energy inspector. A home energy rating tells how efficient the home is. In order to determine the efficiency, an inspector will come out to the property. Specifically, they will examine the insulation, heating and cooling system, window efficiency and airflow. Based on the findings, the inspector will provide a comprehensive report and rating. The report will outline any issues that need to be addressed, the cost of fixing the issues, any additional improvements that can improve the efficiency, and annual cost savings. The cost of the inspection can be paid by any party to the transaction or built into the mortgage.

Financing Options

Once the property has been assigned an energy rating and deemed energy efficient, you can then take this information and find a program or lender to finance the property. Both government and traditional programs provide funding for energy efficient homes. The Federal Housing Authority (FHA) offers a government energy efficient loan program. The program allows for home improvements to be made by the homeowner without having to take out additional loans. This reduces cost on the homeowner. There are specific requirements such as income that are necessary to qualify for the program.

Another financing option is through traditional lender. Traditional lenders work with Freddie Mac and Fannie Mae to offer the program. By working with these agencies, lenders are able to increase the borrower’s income by a dollar. The dollar amount equates to the amount of savings from being energy efficient. In addition, your lender may take into consideration the costs of improvement and add them into the mortgage. This will help eliminate the need for a home improvement loan.