What if your mortgage lender offered to help you finance some simple improvements to your new, or existing, home that would improve its overall efficiency and at the same time reduce your energy bill so that even with the additional mortgage expense, you still came out ahead each month? If this scenario sounds like something you’d like to pursue, you may want to learn more about Energy Efficient Mortgages, also known as EEMs, and find out if they could be an appropriate option for you.

What Is An Energy Efficient Mortgage (EEM)?

An Energy Efficient Mortgage is a mortgage that provides additional money (beyond the regular financing of your home) to pay for some specific renovations that, when completed, will make your home more energy efficient so it will cost less to operate. The goal of this program is to encourage more people to take steps to help reduce energy consumption in the United States and also to eliminate energy-related pollution.

There are several ways that an Energy Efficient Mortgage can work in your favor.

• First, if you are buying a new home or refinancing an older one, you can use an EEM to cover the costs of making key energy efficient improvements. To do this, you will not need to qualify for a higher loan or include any portion of this amount as part of your down payment. Further, since the money for these improvements will be factored into your mortgage, you generally don’t have to pay any out-of-pocket expenses. You will, of course, make a higher mortgage payment each month to account for the additional cost financed into the loan, but keep in mind that the improvements will actually reduce your energy bills more than the extra mortgage amount adds to your monthly payment. This means that your overall expenses each month will still be lower as a result of participating in this program. So if your monthly budget is tight, investing in these improvements can actually make your dollar stretch further.
• Another use for an Energy Efficient Mortgage is to help you qualify for a larger mortgage. This is because with an energy-efficient home, your monthly expenses will be lower than if you lived in a standard home. That means you will have more expendable income at the end of each month that you put into a higher mortgage premium. As a result, people with energy-efficient homes can qualify for a higher debt- to-income qualifying ratio and can actually buy a more expensive home if it includes some important energy-saving features.
• Finally, a home that has energy-saving options installed has an increased value, so the money you put into your home not only benefits you up front and on a monthly basis, but can also be a wise financial move to protect your investment over the long term.

It is important to note that Energy Efficient Mortgages can be used on new construction or on older homes, but in either case, they are only appropriate if the improvements will save more money on a monthly basis, as well as over the life of the loan, than they cost to make in the first place. This means that not all changes will qualify under this program. The type of changes that can typically improve the energy efficiency of a home include insulation, certain appliances and special windows.