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What is an Energy Efficiency Mortgage (EEM)?

An EEM is a mortgage program that recognizes the lower cost of operating an energy efficient home compared to a regular home due to lower utility bills. The underwriter factors in these savings to the borrower’s qualifying debt-to-income and housing expense-to-income ratios allowing the borrower to finance a new or existing home that is more efficient. An Energy Improvement Mortgage (EIM) is a similar program that allows the borrower to buy or refinance an existing home that will benefit from energy efficiency upgrades. The terms “EEM” and "Green Loans" are generally used to describe all the Energy Efficiency loan programs.

EEM programs are sponsored by the federally insured mortgage programs (FHA & VA) and the conventional secondary mortgage market (Fannie Mae and Freddie Mac). Meridian Mortgage offers a full range of EEM programs.

Is it more difficult to get an EEM?

If you qualify for a Fannie Mae, Freddie Mac, FHA or VA program, you automatically qualify for the equivalent EEM products.

Are there extra steps to getting an EEM?

It does take a little longer to process an EEM loan compared to non-EEM loan because there is an extra step - the HERS certification. So the lender can validate and quantify the potential energy savings, the home must be certified by an approved Home Energy Rating System (HERS) auditor. Just like your home appraisal and home inspection, NOVA Green will help you schedule the HERS audit.

The HERS rater will measure and assess the efficiency of your home by reviewing the HVAC systems, windows, insulation and envelope for leaks and proper functionality. They will provide you with an official HERS certification stating you home's energy efficiency rating.

Does an EEM cost more?

There is a fee for the HERS rating. Fees up to $200 can be incorporated into the mortgage costs. The remainder is an upfront cost paid by the borrower. HERS raters charge a flat fee plus a surcharge based on the square footage of the home. A typical HERS fee is currently from $500 to $800.

What are the benefits of an EEM?

The EEM loan allows the borrower to afford additional comfort and performance in their home. This means lower operating costs and higher home value. This also means higher resale value if you put the house on the market. With rising energy costs, this can be a significant differentiator for a home seller.

Are there other benefits to getting an EEM?

Besides the added buying power, there are other benefits to EEMs. First and foremost is the lower operating costs. Energy efficient homes have lower utility bills and this puts more money into your pocket each month, while making your home more comfortable.

Additionally, there are federal tax credits for energy efficiency improvements. With the recent stimulus bill, these credits were increased to 30% of the cost of the capital improvement in several categories including windows, roofs, HVAC systems and water heaters. Find additional details at the EnergyStar website (Energy Star: Energy Efficiency Tax Incentives).

Depending on where you live, you may qualify for other incentives from your power company. SWEPCO offers rebates for installing new high SEER rated air conditioner or heat pump (SWEPCO Energy Efficiency Incentives). Other power companies have different programs.