A study by the EIA found that homes built after 2000 were 30% larger on average but consumed roughly the same amount of energy as older homes.
Thanks to advanced technology and a new push to go green, many new construction homes seriously consider energy-efficient design when constructing an energy-efficient home.
Minor considerations like reducing drafts from single pane windows or insulated rim joists help newer builds save significantly more energy bills than older homes.
However, purchasing new energy-efficient appliances and repairs can add up quite quickly. A new HVAC system could range between $5,000-$7,000 for a 15-foot home, and tons of minor repairs, such as weatherstripping and weatherizing an older home, can add up.
Fortunately, the US Department of Housing and Development offers energy-efficient mortgages, or green mortgages, to finance expensive energy-related repairs.
Contractors and developers can benefit from partnering with energy consultants who guide them and their customers on energy-efficient upgrades and mortgage programs that save their business and customers the most money.
As energy prices continue to skyrocket in an uncertain energy environment, the push to go green has never been greater.
With that in mind, let’s discuss an energy-efficient mortgage (EEM), what repairs it can finance, and how your customers can qualify.
What Is An Energy Efficient Mortgage (EEM)?
This type of mortgage is a federally backed loan that enables residential customers to finance eco-friendly upgrades to a single-family home.
An EEM or green mortgage can be financed in a new mortgage or refinanced as a separate one.
However, unlike most refinances, EEMs are added to the existing mortgage so property owners don’t have to make two separate monthly payments.
EEMs are available through conventional loans, FHA-backed loans, or VA loans.
Loan requirements will differ between existing homes vs. new construction projects and loan types.
Benefits of an Energy Efficiency Mortgage (EEM)
Energy efficiency mortgages have several advantages for homeowners, contractors, and developers. Here’s a closer look at how EEMs can be beneficial:
- Lower Utility Bills: Energy-efficient upgrades like HVAC systems, spray foam insulation, and solar panel installations can cut energy consumption significantly, often resulting in noticeable savings within the first year.
- Increased Home Value: Homes equipped with energy-efficient features are generally more attractive to potential buyers, allowing builders to charge more for the final bill.
- Environmental Impact: EEMs help promote greater energy efficiency, reducing greenhouse gas emissions over the home’s life.
- Tax Incentives and Rebates: Many energy-efficient improvements qualify for federal, state, or local tax credits and rebates, such as the 45L tax credit.
EEM Loan Eligibility
To qualify for an EEM through any loan program, the applicant must prove that the cost of renovations will be less than the total cost saved through energy improvements over the life of the loan.
For example, a contractor would hire an energy consultant to run a comparative analysis to see if installing a new HVAC system will be less than the total cost saved over X number of years (based on the length of the loan and current energy costs).
To determine cost savings, contractors and builders are required to work with a qualified energy consultant to prepare an energy assessment based on the Home Energy Rating System (HERS).
According to HUD, energy consultants must be certified in the following areas to qualify for application:
- Building Performance Institute Building Analyst Professional
- Building Performance Institute Home Energy Professional Energy Auditor
- Residential Energy Services Network Home Energy Rater
Thankfully, a lender can roll energy consultations and assessments into an EEM.
Additionally, a homeowner must meet minimum credit and borrowing requirements to qualify for an EEM through a new mortgage or refinance.
With that stated, how do EEMs differ for new builds compared to existing and older homes?
EEM Loan Requirements for New Construction Homes
HUD bases cost savings on financing energy efficiency improvements in new builds by using the International Energy Conservation Code (IECC) standards.
Builders must work with energy consultants to determine whether or not the cost of adding a new energy-efficient upgrade will be less than the cost savings estimated by the IECC.
From here, builders will need to work with residential customers to see whether or not they’d prefer to finance new upgrades through a green mortgage late into a project.
However, the amount a customer can finance through an EEM will be capped based on their chosen loan program.
EEM Loan Programs
| Loan Programs | Borrowing Limits/Eligibility |
| Conventional |
|
| FHA |
|
| VA |
|
What Improvements Does an EEM Finance?
EEMs can be used to finance any improvements to a home that provide energy savings. Examples of EEM financing include the purchase of:
- Energy Efficient Appliances
- Active/Passive Solar Systems
- Weatherproofing
- Energy Efficient Windows and Doors
- Energy Efficient Roof Improvements
- Home Insulation
- Weatherstripping/Caulking
- New Ductwork/Repair
- New HVAC Systems/Individual Improvements
- Water Heater
- New Chimney/Repair
How to Qualify for an EEM: Key Steps
Qualifying for an energy-efficiency mortgage requires some additional steps beyond a typical mortgage application.
- Consult with an Energy Rater: Contact a certified energy rater to assess the property’s energy usage. Based on the Home Energy Rating System (HERS), this assessment provides a clear picture of how energy-efficient the home is and identifies areas where improvements can be made.
- Complete an Energy Audit: The energy rater will conduct an energy audit that evaluates the current HVAC system, insulation, windows, doors, and other key areas. The audit will include recommendations on which improvements would yield the highest energy savings relative to cost.
- Submit a Detailed Report to Your Lender: Once the audit is complete, the energy consultant will prepare a report detailing the expected savings of each recommended upgrade. This report must be submitted to your lender, who will use it to determine if the projected savings justify the cost of the improvements.
- Choose Your EEM Program: Depending on eligibility, you can choose an EEM through a conventional loan, FHA, or VA loan. Each program has specific borrowing limits and requirements that must be met, so it’s essential to review which option best suits your needs.
Seeking Out an EEM Assessment
Contractors and builders can significantly benefit from pointing their customers toward EEMs, which help them finance energy-efficient repairs/installations that save them money.
However, to apply for an EEM, you must partner with a qualified energy consultant who can run a proper cost assessment to determine your customer’s loan eligibility. Not only will this help you determine if your customer is eligible, but an energy rater can also run a cost analysis to point you toward more areas of improvement that yield significant cost savings.
If you are seeking out a qualified energy consultant for an EEM assessment, contact us at (407) 604-3555 to speak to a representative or toll-free at 844-500-PATH.
FAQs
Do I need an energy assessment to qualify for an EEM?
Yes, an energy consultant will conduct a Home Energy Rating System (HERS) assessment to estimate energy savings and determine loan eligibility.
What types of improvements can be financed with an EEM?
Improvements like energy-efficient appliances, windows, doors, insulation, solar panels, and HVAC systems are eligible for EEM financing.
Are EEMs available for both new and existing homes?
Yes, EEMs are available for both new builds and existing homes, with specific requirements for each based on the loan program used.