Green mortgages save on energy, loan costs

The FHA program allows homeowners to finance energy efficiency improvements by adding up to 5 percent of the property value up to $4,000 to the green mortgage. The limit may increase if the loan is used for weatherization improvements or to pay for solar photovoltaic panels or solar water heating installation.

Fannie Mae will allow homebuyers to bump their debt-to-income ratio -- one factor in determining a mortgage's size -- by 2 percent, as the larger mortgage payment would be balanced by the monthly utility savings from green improvements.

In the case of a new, already energy-efficient home, homebuyers can increase the mortgage amount by an additional 5 percent of the home’s value.

Through the VA's energy-efficient mortgage program, qualified military personnel, reservists and veterans are allowed to finance up to $3,000 in upgrades based solely on their documented costs and up to $6,000 if the improvements are projected to produce more savings than the cost of those upgrades.

Good luck finding a green mortgage

Before you can take advantage of an energy-efficient mortgage's savings benefits, you'll have to find one, which may be no easy task. Many lenders are reluctant to offer the products, while those that do have been slow to market them.

In an April 2007 report, the energy consortium pointed to several barriers to green mortgages: They require more paperwork and processing time; they're harder to sell in the secondary mortgage market; borrowers rarely request them, and real-estate agents are largely unfamiliar with them.

"For some lenders, it's similar to doing a rehab mortgage because they have to hold the money in escrow until it's done. So there are extra steps involved," Wolfe says.

Jeff Bricmont, certified green building professional with Modern Earth Inc., a mortgage broker and FHA green-mortgage processor in Encino, Calif., says even when some lenders make information about green mortgages available to customers, they don't necessarily push the products.

"Per FHA guidelines, every FHA loan packet has an EEM Fact Sheet as a disclosure, though you wouldn't know it from the volume done," Bricmont says. "Most loan officers aren't familiar with the benefits or steps to take for an EEM. If they understood the benefit to the client they might be more supportive."

If you're trying to find out just who is offering green mortgages in your area, Wolfe suggests checking the Web site of your state's housing finance agency for information or contacting your state energy office. You can locate that number on the Web site for National Association of State Energy Officials.

Qualifying for a green mortgage

There are two ways a home can qualify for a green mortgage. For existing homes, you'll need energy-saving improvements verified by a Home Energy Rating System, or HERS, report, following an inspection by a certified home energy rater. To find one in your area, go to the Web site of the Residential Energy Services Network, click on "Home Energy Ratings," and then select "Find a Certified Rater." For new construction, a builder must certify that home meets energy-efficiency guidelines.


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