Q: What is an Energy Efficiency Mortgage (EEM)?
A: An EEM (Energy Efficient Mortgage) in effect is a stand alone loan that is added to the overall mortgage with no additional loan fees or down payment requirements. These are used to implement "cost effective energy" saving measures that pay for the loan.
Q: What is meant by "cost effective"?
A: The benefit the borrower will receive in energy savings must exceed the monthly loan cost of the EEM. If the average monthly utility savings do not exceed the total costs for the retro-fit measures then the improvements are not cost effective and the home will not qualify for an EEM. Most energy efficiency measures will pay for themselves in 1-3 years and typically new appliances and HVAC systems will pay for themselves in 5-7 years.
Q: How does a Home qualify for an EEM?
A: The lender requires a certified home energy audit report be completed by a Home Energy Rater (HERS). The report will indentify the line item measures and their estimated costs that the lender can qualify within the EEM.
Q: How does a Buyer qualify for an EEM?
A: Importantly, the increase funds of the EEM do not cost the Buyer more in loan fees or increase of down payment amounts Nor does the increase loan amount jeopardize the Buyer’s ability to qualify for the increase loan amount. The reason for this is for the simple fact that the monthly/annual energy dollar savings must be in excess of the monthly/annual increase of the EEM amount.
Q: How does the EEM benefit the borrower?
A: The EEM benefits the borrower in several ways. First, the estimated energy savings are added to the borrower's income to allow the home buyer to qualify for a larger total mortgage amount. Second, by increasing borrowing power, the EEM allows borrowers to include the costs of energy improvements into the total mortgage amount. 100% of the energy improvements and up to 5% of the appraised value of the home, can be financed and paid for over the life of the mortgage, reserving the borrower's cash for more immediate, move-in costs.
Q: What types of transactions can the EEM are used for?
A: The EEM can be used for both purchase and refinance transactions. The standard EEM can also be used for limited cash-out refinances.
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