Make Your Home Energy Efficient With These 4 Different Types of Green Mortgages
A green mortgage allows home owners to own a home at an affordable cost, with the added benefit of saving energy from the moment the home owner moves in to the home.
The cost of making home improvements can be high. It’s also harder for you to get additional funding for your energy-efficient improvements so soon after getting a mortgage. This is because with every loan, your credit gets more depleted and this makes banks more reluctant to lend.
How EEMs work
A green mortgage or energy efficient mortgage (EEM for short) ties in the cost of making energy efficiency renovations into your mortgage.
Another way that green mortgages work is by waiving fees or giving discounted interest rates, to encourage you to make energy- efficient renovations with the savings you make.
Interest payments on mortgages are tax-deductible. You therefore save money by using a green mortgage as opposed to a credit card, cash or any other type of loan, all of which don’t have any tax benefits.
Different types of green Mortgages
Most federal government bodies such as the FHA offer green mortgages. Besides banks and government bodies, non- profit organizations have also contributed in making energy efficiency financing a possibility for home owners.
The ‘energy-star’ mortgage
A good example of a loan that incorporates the cost of energy-saving renovations into the mortgage is the “energy star mortgage” a green mortgage product targeted at new home buyers. The mortgage also offers home refinancing.
The aim of this mortgage is to encourage home owners to make their homes more affordable by making them more energy efficient.
The consortium behind the energy star mortgage requires banks to offer discounts on mortgages, or foot a percentage of the closing costs, in order to enjoy the benefit of offering mortgages branded ‘energy star’.
The energy star mortgage is offered in Washington, D.C. Most other states such as New York, Kansas and others also have their own EEMs. Private entities such as Citibank also have energy efficient mortgages.
Under the federal housing administration program, homeowners can finance their energy efficiency enhancements by adding an amount equivalent to 5% of the property value to the mortgage.
This limit may be higher based on the extent of the improvements. For instance, the cost of solar panels is high, hence the percentage added to the mortgage will be higher.
The Federal National Mortgage Association (FNMA),
Commonly known as Fannie Mae, the FNMA offers green mortgages by allowing borrowers to borrow at 2 percent above the allowed ‘debt-to-income’ ratio. The expectation being that as a result of the energy savings that will be realized, the size of the mortgage will be balanced off.
Department of Veteran Affairs
The VA department offers green mortgages to people in military service, veterans, as well as reservists. Borrowers can get up to a maximum of $3000 to make the necessary upgrades.
If the improvements are expected to bring in more savings than the amount invested, borrowers can be eligible to a higher amount of up to $6000.
About the author
Luce Geissler has been a financial consultant for the last 7 years and recommends national debt relief services to her clients. Visit his blog for more information.