What is an origination fee?
Planning to buy a house? Learn what an origination fee on a mortgage is and how much it costs. Plus, find out about other closing expenses.
Leorah Gavidor
An EEM can help pay for energy-efficient homes and improvements
An energy-efficient mortgage is a home loan you can put towards either buying a home that’s already efficient or remodeling a home to make it greener.
So, whether you’re a buyer or an existing homeowner, an energy-efficient mortgage may be right for you. Read on to see how an energy-efficient mortgage (EEM) works and where to get one.
You can use an energy-efficient mortgage to buy a new home or refinance your current home. You just have to use the money for a home that’s already energy efficient or for efficiency upgrades. Eligible upgrades can include:
Energy-efficient mortgages often add the cost of these upgrades (including materials, labor and inspections) to your loan limit. This means you can potentially borrow more than you would otherwise be qualified for.
The exact process for getting an energy-efficient mortgage may differ, depending on the type of EEM you choose and what you’re doing with it. Many energy-efficient mortgages are insured by the federal government, which means they come with specific requirements no matter where you get one. Conventional EEMs can have similar stipulations, but these vary by lender.
From there, you can begin applying for an energy-efficient mortgage through your lender of choice.
Lenders offer various types of energy-efficient mortgages. Consider the options below to find which one is better for you.
Like other conventional mortgages, conventional EEMs are offered by private lenders and not insured by the government. There are multiple options available for conventional EEMs.
For instance, Fannie Mae offers its HomeStyle Energy mortgage that you can use to buy a home and make green upgrades, including improvements to the home’s:
With this loan, you could have a down payment as low as 3%, and you can potentially bundle your debt from other green upgrades into your mortgage. If you’re a buyer, you can use up to 15% of the eventual value of your home (once the upgrades are complete) for your improvements. If you’re refinancing, you can use up to 15% of your home’s current value.
The Federal Housing Administration (FHA) insures energy-efficient mortgages available from private lenders. These loans can be used for purchasing and refinancing, and you can even use the agency’s Energy Efficient Homes (EEH) program to get more money for a house that’s already environmentally friendly.
EEM terms usually range from 15 to 30 years.
The limit for how much extra you can borrow versus a typical FHA loan is the lesser of either:
You can apply for an FHA energy-efficient mortgage at your local HUD office via an FHA-approved lender. Read about FHA loan requirements for more information.
Eligible military personnel, veterans and reservists can use loans from the U.S Department of Veterans Affairs to purchase an energy-efficient home or upgrade a home to make it energy efficient. However, these loans may not offer specific benefits for energy efficiency.
For more, read about the eligibility requirements for a VA loan or compare top VA loan lenders.
Several possible advantages come with energy-efficient mortgages, including:
If you’re buying a home that’s already efficient, an EEM should give you a higher loan limit. This is because lenders factor in the potential savings for your budget. An EEM can also make buying a less efficient home more viable if you’re willing to upgrade it.
For existing homeowners, refinancing with an EEM is a good way to get cash for efficiency improvements without tapping into your home’s equity or your savings.
Here are some factors worth considering before applying for an energy-efficient mortgage:
As with any home loan, you also want to consider your interest rate, loan term and fees.
Energy-efficient home loans are offered by a wide range of lenders:
Whether your house is already efficient or you’re trying to improve it, an energy-efficient home loan may be a good option. Energy efficiency can save you money over the long term, and it’s good for the environment too.
If you don’t need a mortgage but you still want to be green, check out our articles on financing home renovations, solar energy companies and solar financing companies.
Planning to buy a house? Learn what an origination fee on a mortgage is and how much it costs. Plus, find out about other closing expenses.
Leorah Gavidor
Adjustable-rate mortgages come with variable interest rates that tend to start low but change over time. How do they work, and when are they worth it?
Emily Moore
An appraisal contingency protects a homebuyer if the house is worth less than expected. Learn how it works and read about other common contingencies.
Jennifer Schurman
Mortgage amortization offers a payoff option with predictable, fixed monthly payments. Read about how it works and the pros and cons.
Jennifer Schurman
An appraisal waiver can save a homebuyer time and money. Learn how skipping out on the appraisal works and what to consider if you waive it.
Josh Richner
An assumable mortgage is one you can take over from the original borrower, keeping the rates and terms. Learn how it works, types and considerations.
Jennifer Schurman
We’ll start sending you the news you need delivered straight to you. We value your privacy. Unsubscribe easily.