Who Qualifies? EEM Contact List Home Energy Rating Systems (HERS) Energy-Efficient Financing Programs
Government-Insured
U.S. Department of Housing and Urban Development FHA Energy-Efficient Mortgage FHA Section 203(k) Rehabilitation Mortgage Insurance FHA Energy-Efficient Home Mortgage FHA Mortgage Increase for Solar Thermal Systems FHA Title I Property Improvement Loan Insurance U.S. Department of Veterans Affairs
Conventional
ENERGY STAR® Mortgage Fannie Mae Energy-Efficient Mortgage Residential Energy Efficiency Improvement Loan Freddie Mac Energy-Efficient Mortgage E Seal Energy Efficiency Mortgage Residential Financing Program

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All buyers or owners who can qualify for any FHA or VA home loans are automatically eligible for the FHA or VA Energy Efficient Mortgage Option. In almost all cases there is no additional down payment and the installed energy improvements will eventually produce a Positive-Cash-Flow. A HERS report is needed to qualify for energy efficient financing.

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Home Energy Rating Systems (HERS) were created to help evaluate energy efficiency levels of new and existing homes and identify ways to improve them. In addition, this system offers a standardized measurement for the financial community (such as mortgage companies) to use. HERS-rated homes often qualify for special mortgage rates. In addition, homeowners can now obtain loans to make HERS-related energy efficiency improvements.
A HERS evaluation is like an energy audit, only more in-depth. Most HERS raters come from either the housing or energy fields and all must pass special training courses and receive certification. Each on-site HERS evaluation examines several key home components and evaluates their energy efficiency levels:
Thermal envelope (structure, insulation and air flow) Window quality and quantity Heating, ventilating, and air conditioning systems Appliances Geographical location and home orientation Fuel types and utility rates
By studying these elements, a HERS professional can calculate a home's energy cost, evaluate its overall efficiency, and recommend future changes. Data from the on-site visit is input into a computer program, evaluated, and put into report format. Typical HERS reports will:
Rate the house (as it is) and estimate its total energy use and costs. Recommend specific cost-effective energy upgrades. Provide detailed information about the costs, "payback periods" and expected lifetimes of the recommendations. Re-rate the home based upon the recommendations and recalculate total energy use and costs.

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You can apply for energy-efficient financing through a government-insured or conventional loan program. Some states even have programs for their residents, so it's a good idea to contact your state energy office to find out if your state does. There are two types of energy-efficient mortgages (EEMs): one for a new home and one for an existing home. With an EEM, you can purchase or refinance a home that is already energy-efficient. Or you can purchase or refinance a home that will become energy-efficient after energy saving improvements are made. Most energy-efficient financing programs offer both types of EEMs, as well as home improvement loans for making energy efficiency upgrades to your existing home. Here's an overview of some of the energy-efficient financing programs available. Each program is subject to change; therefore, you should contact a program directly for the most current, detailed information.

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Government-Insured Under the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Authority (FHA) insures mortgage and home improvement loans, through its approved lenders, for borrowers who would not otherwise qualify for conventional loans on affordable terms, such as some first-time home buyers and some residents of disadvantaged neighborhoods.

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FHA allows borrowers to finance the cost of adding energy-efficient improvements to new or existing homes as part of their FHA-insured purchase or refinancing mortgage.

• Energy-efficient improvement costs of $4,000 or 5 percent of the property value (up to $8,000), whichever is greater, can be financed.
• The FHA maximum mortgage limit for an area may be exceeded by the cost of the improvements.
• No additional down payment is required.
• No requalifying is necessary.
• No new appraisal is needed.
• Up to $200 of the cost of a home energy rating may be included in the mortgage.

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FHA Section 203(k) rehabilitation mortgage insurance provides a borrower with a single loan that covers both the purchase or refinancing and the cost of major home improvements, including those that save energy. The program allows borrowers to complete improvements after the loan closes. The funds are placed in an escrow account and released as improvements are made.

• Total cost of improvements must exceed $5,000.
• The total property value must still fall within the FHA mortgage limit for the area. (The property value is determined by whichever is less: the value before the rehabilitation plus the cost of the rehabilitation or 110 percent of the appraised value after rehabilitation.)

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When purchasing an energy-efficient home, an FHA-approved lender can stretch the borrower's debt-to-income ratio by 2 percent.

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The maximum loan limit under FHA's standard 203(b) or 203(k) property rehabilitation mortgage insurance can be exceeded by 20 percent if the home has or will have a passive or active solar heating system. The home must also have a 100 percent operational, conventional backup system.

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FHA also insures home improvement loans, including those that will make a home more energy-efficient, for homeowners with FHA-insured mortgages. It features:· Loans up to $25,000 for a single-family home · Loans insured up to 20 years No required home energy rating reports.

The U.S. Department of Veterans Affairs (VA) guarantees mortgage loans for veterans with active duty service and qualified reservists. Its EEM can be used to purchase or refinance a home along with the cost of making energy-efficient improvements. To cover the cost of the improvements, the loan amount can be increased:

• Up to $3,000 based solely on documented costs
• Up to $6,000 if the increase in the mortgage payment is offset by the expected reduction in utility costs.
• More than $6,000 based on a value determination by VA.

The ENERGY STAR® Homes program - sponsored jointly by the U.S. Department of Energy and the U.S. Environmental Protection Agency - promotes voluntary partnerships with home builders to construct new homes that are 30 percent more efficient than the guidelines established by the Model Energy Code - a "model" national standard for residential energy efficiency. The program also encourages lenders to provide EEMs for certified ENERGY STAR® homes. An ENERGYSTAR® mortgage offers a minimum 2 percent stretch on a borrower's debt-to-income ratio, plus at least one additional incentive for borrowers. Incentives may include:

A lower interest rate A discount on closing costs and/or origination fees Up to a 4 percent extension of the debt-to-income ratio stretch Paying for the cost of the home energy rating.

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Fannie Mae - a private, shareholder-owned corporation - operates under a congressional charter that directs it to channel efforts into increasing the availability and affordability of homeownership. It doesn't lend money directly to homebuyers; it purchases mortgages from lenders, ensuring that funds are available.

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Fannie Mae encourages lenders to offer its EEM by providing incentives and specific criteria for those that it's willing to purchase from lenders. Both existing and new homes fall under this EEM. Several approved home energy rating methods and programs, not just a HERS, are allowed to evaluate a home's energy efficiency. For existing homes, the cost of improvements is limited to 15 percent of its total cost. There is no limit imposed on the cost of improvements for new construction. A homebuyer can finance 100 percent of the energy efficiency improvements without increasing the down payment.

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Freddie Mac is a stockholder-owned, congressionally chartered corporation that works to create a continuous flow of funds to mortgage lenders in support of homeownership and rental housing. It purchases mortgages from lenders and packages them into securities that are sold to investors, providing homeowners and renters with lower housing costs and better access to home financing.

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E Seal, an Edison Electric Institute program, provides energy-efficient solutions for homebuyers, residential energy customers, small business customers, and homebuilders.

• 100 percent financing of energy efficiency upgrades
• No additional down payment, mortgage insurance obligation, or requalification
• Maximum qualifying ratios that are 5 percent better than standard ratios and 3 percent better than regular EEMs
• Lower than prevailing market interest rates and closing costs.

For energy-efficient home improvement loans, E Seal's program participates with Fannie Mae's Residential Energy Efficiency Improvement Loan program (see above).When it comes to energy-efficient financing - whether you want to purchase, refinance, or remodel a home - it's best to work with lenders and/or real estate agents who are familiar with home energy ratings and program requirements. If you'd like a home energy rating report, it's also best to work with a certified energy rater. In all instances, it's always a good idea to ask for references and check companies with your local better business bureau.

The following are the key national contacts for lenders planning to establish an Energy Efficiency Financing program:

TexEnergy is an ENERGY STAR® partner, providing the independent verification services that allow homes to earn the ENERGY STAR. Homes that earn the ENERGY STAR label meet EPA's strict guidelines for energy performance, deliver significant energy and cost savings, and help protect the environment.

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