Energy Roofing Systems: Energy Efficient Mortgages (EEMs)

From RESNET

There is an emerging market force towards energy efficient homes. From Florida to Alaska mortgage lenders are increasingly using energy mortgages to make homes more affordable and poising their companies to capture this new market trend.

What is an Energy Mortgage?

An energy mortgage is a mortgage that credits a home's energy efficiency in the home loan. For an energy efficient home, for example, it could mean giving the home buyer the ability to buy a higher quality home because of the lower monthly costs of heating and cooling the home. For homes in which the energy efficiency can be improved, this concept allows the money saved in monthly utility bills to finance energy improvements.

There are Two Types of Energy Mortgages:

Energy Improvement Mortgage - Finances the energy upgrades of an existing home in the mortgage loan using monthly energy savings.
Energy Efficient Mortgage - Uses the energy savings from a new energy efficient home to increase the home buying power of consumers and capitalizes the energy savings in the appraisal.

Increases Purchasing Power

The ability to leverage a home buyer's investment in energy efficiency increases the number of qualified home buyers and increases the purchasing power of the consumer. A recent analysis by the Environmental Protection Agency (EPA) confirmed that energy efficient mortgages can have a dramatic impact on increasing the opportunities for home ownership. The analysis found that an average of 6.8% more families would be able to qualify for a mortgage through an energy efficient mortgage.

Increases Market Value of Homes

Another study published in the Appraisal Journal documented that the market value of a home increases $20 for every $1 decrease in the annual energy costs. According to a recent analysis by the Pacific Northwest National Laboratory building a home to exceed the Model Energy Code would result in an annual savings of $170 to $425. Applying these findings to the analysis published in the Appraisal Journal would equate to an increased home market value of between $4,250 to $10,625.

Energy Efficient Mortgage Guidelines

Fannie Mae, Freddie Mac, FHA and VA have adopted special underwriting guidelines to make financing energy efficiency less burdensome. The energy mortgage guidelines for each secondary mortgage market can be accessed below: