The Process

The process of applying for an Energy Efficient Mortgage is relatively straightforward, but it does involve more paperwork than for a traditional loan. You also can’t apply for an Energy Efficient Mortgage after your mortgage is complete, so it’s important to get the ball rolling along with your regular mortgage application process. If you are interested in an EEM, the first step is usually to contact a lender in your area. You will also need to schedule an energy-efficiency evaluation to find out how your home compares to other, similar structures, and see if you can even qualify to go this route.

There are several ways that a house can be evaluated to see if it is energy efficient as is or would benefit from some strategic improvements. One of the most common approaches being used in most states today is the Home Energy Rating System (HERS). This system measures the potential value of improvements and weighs the costs and savings in several ways. The process usually begins with a certified inspector who comes to your home and rates it according to certain criteria to determine the overall energy efficiency and suggest strategic changes. The HERS report he or she generates also provides cost estimates for these improvements and determines how much money they will save. In addition, the report calculates the break-even point, or how long it would take for the savings to equal the amount spent in making these improvements. The findings are presented using a rating scale of 1 to 100, with 100 being the gold standard in efficiency.

The cost for an energy evaluation is about $300.

Once you find out if you qualify and, if so, have a list of suggested cost-effective improvements, you can work with your lender to determine which ones (or perhaps all of them) can be added to your mortgage amount. The money to pay for these improvements will usually be set aside in an escrow amount to be released after the improvements are complete. Keep in mind that some lenders set a time frame (usually three to six months) within which the work must be done.

What It Costs For An Energy Efficient Mortgage

To show you more how an Energy Efficient Mortgage works, let’s assume that you are purchasing a home that costs $200,000. If you put a 20 percent down payment on the home, you will be financing $160,000. If you want to include an additional amount to pay for energy-efficient improvements, with a conventional EEM you can add up to 15 percent of the house’s value, or $30,000, to the loan as long as the improvements pass the cost-effectiveness test. The traditional loan payment for $160,000 at a fixed 6 percent interest rate for 30 years is a monthly $959.28 for principal and interest. (This does not include taxes and insurance.) The payment for the larger loan of $190,000 is $1,139.15. This is an increase of $179.87 a month to cover the improvements. When you consider that your utility costs will generally be cut in half, if you are currently paying $400 a month in energy bills, you can expect these to be reduced to $200 a month with the changes you implemented. This means that even after the additional $179.87 you are paying on your mortgage, you still save $20.13 each month in the end. While these costs are just rough estimates, they can at least give you an idea of how the program works.>

So in both the short term, as well as the long run, an Energy Efficient Mortgage will save you more than it costs.

If you qualify for an Energy Efficient Mortgage, you can also experience a tax benefit as well. Some strategic improvements will qualify for up to 10 percent of the cost (or up to $500 total) when you file your returns. Further, solar technology qualifies for a larger tax benefit of 30 percent of the cost, up to $2,000. Check with your tax professional to find out more about these and other tax breaks to see if they apply to your specific situation.

Also keep in mind that beyond the cost savings on so many levels, when you get an Energy Efficient Mortgage, you are taking a positive step to protect the environment. A typical home that implements energy-saving steps using an EEM will conserve the nation’s energy resources and will also result in lowering greenhouse gas emissions by as much as two to four tons every year.

So when you take the time and effort to make key changes through an Energy Efficient Mortgage, everyone wins.