Blog : New Energy Efficient Mortgages offer more flexibility, opportunity
For years, those who wished to bolster their home’s energy efficiency often had to take out additional loans, or recoup what they could from the myriad government rebates available for certain retrofits or improvements.
Now, the Federal Housing Authority (FHA) is offering a way for homeowners – both existing and prospective – to bundle energy efficiency improvements into their mortgage.
Aptly named Energy Efficient Mortgages (EEMs), the tools allows for the borrower to increase their mortgage to cover energy related improvements, and can be used for existing homes, new construction and refinancing.
The cost of the improvements is added on top of the amount for which the borrower has already been pre-qualified, and does not affect the borrower’s debt to income ratio. Also, there is no additional appraisal required.
The only qualifying factor is that the energy savings from the improvement package must be more than the increase in the monthly mortgage payment.
For existing homes or condominiums, applicants can receive up to 5% of the appraised value of the home, or 5% of 115% of the median home value (determined county by county), whichever is less.
According to the Department of Housing and Urban Development (HUD), the 2012 median value price for Rockingham and Strafford counties is $400,000. In York County, Maine, that value is $220,000.
That means a homebuyer or owner can qualify for up to $23,000 or $12,650, respectively.
So, for example, a home worth the York County average of $253,000 would qualify for an additional $12,650 for improvements and retrofits.
While 5% of anything might not seem like much, Ed Henningsen, owner of the Eliot-based Henningsen Inspections, says that can add up to significant improvements to a home’s efficiency.
“New heating plant, better insulation – there are a number of things you can achieve with that extra 5%,” says Henningsen. “In most every instance tacking that extra little bit on ends up being more than worth it down the road.”
Another program under the greater FHA mortgage umbrella – which targets weatherization specifically – allows prospective homeowners to tie on an additional $2000 to their mortgage for improvements and retrofits.
While the program has been available for years, Henningsen says it’s been comparatively under utilized in New Hampshire and Maine.
“Part of it has to do with the lack of properly certified auditors,” explains Henningsen. “Because of that, there weren’t a lot of people recommending it or marketing it to real estate agents or loan officers.”
Henningsen, who provides radon mitigation, testing and standard home inspections in addition to energy audits, says that, with home prices at or near their basement, tacking on a few extra thousand dollars for energy efficiency measures poses less of a financial risk than it may have, say, 10 years ago.
“The timing for taking advantage of an energy efficient mortgage couldn’t be better,” says Henningsen. “As the housing market climbs its way up, these improvements and retrofits should translate into even higher home values than if the home had just been left alone.”
Plus, it gives prospective homebuyers a way to improve aspects of the home that the seller – never eager to take on more costs than deemed necessary – might not necessarily care to deal with.
“Most people end up being maxed out when they secure a mortgage, but this allows them to have a little extra wiggle room for when the home inspection is conducted and some efficiency problems arise,” says Henningsen.
Last week, Henningsen gave a presentation to a group of local appraisers on the benefits of energy efficient mortgages. He says that, while the public has yet to catch on to many benefits, so long as those in the industry are committed to promoting them, energy efficient mortgages should soon have their day in the sun.
“Pretty much everyone I’ve talked to in the real estate sector has been getting more and more interested in pursuing these,” exclaims Henningsen. “You get the feeling that it’s starting to come about – more people are being educated, and sooner or later that has to translate into action.”