These Mortgages Are Efficient

If you’ve been putting off making energy-efficient upgrades to your home because you are worried about the cost and think you can’t afford them, now is the time to stop procrastinating and take advantage of the energy-efficient mortgage (EEM) program and a new tax credit for upgrades.

What Is an EEM?

>> An EEM helps home buyers or homeowners save money on utility bills by enabling them to finance the cost of adding energyefficiency features to new or existing homes as part of their Federal Housing Administration (FHA)-insured home purchase or refinancing mortgage.

EEMs are one of the most beneficial and under-utilized programs that a homeowner can capitalize on in today’s market. Although they have been around since the ’80s, their use receded when subprime loans took the stage, explains Jana Maddux, program manager for California Home Energy Efficiency Rating Services (CHEERS ® ). “This is the best kept industry secret.”

Why Now?

>> Recent developments make this the best time for homeowners to give serious thought to making the upgrades that will lower utility bills while increasing the value of the home. Earlier, the maximum amount the FHA allowed for upgrades was $8,000. That stipulation was recently modified, so now the maximum amount of the portion of the EEM for energy improvements is to be the lesser of 5 percent of the value of the property or:

• 115 percent of the median area price of a single family dwelling; or  150 percent of the conforming Freddie Mac limit.

Also, under the stimulus plan, upgrades are eligible for a tax credit of 30 percent of qualifying costs up to $1,500, but this is only through 2010.

Who Offers It and How Can You Qualify?

>> EEMs are sponsored by federally insured mortgage programs (FHA and Veterans Affairs) and the conventional secondary mortgage market (Fannie Mae and Freddie Mac). Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs. For instance, anyone eligible for the FHA section 203(b) mortgage insurance can apply for an EEM, once the cost of improvements and estimated savings are determined by a home energy-rating system consultant.

The first step is to have a CHEERS® rater or another approved energy rater complete an analysis of your home and obtain a report, which you then submit to the lender. The main criterion is that your savings after upgrades should exceed their cost.

“The CHEERS® report will show the existing condition of the house after conducting several tests, all of which determine how much air leakage there is and the estimated savings and future utility bills after improvements are made,” Maddux says. Raters are independent, and some may also be able to coordinate the entire upgrade process for you, for a fee.

Which Upgrades Qualify?

>> Insulation, new furnaces, air-conditioning and heating units, dual-pane windows, duct system and air leakage repairs, water heaters, and lighting.

More Info:

• ENERGY STAR: www.energystar.gov/

• To find out more about the FHA requirements and search for EEMs: http://portal.hud.gov/.

• For an FHA lender list: www.hud.gov/ll/code/llslcrit.cfm.

Padma Nagappan is a freelance real estate writer.