Incorporating environmentally friendly building materials and energy efficient heating and cooling systems into a home may reflect a commitment to the environment or a wish to save money on energy costs. It is also an increasingly important issue for the United States government, which has developed a number of consumer-oriented incentives for energy efficiency and green building practices. Conserving energy is a matter of national security. Lower energy usage reduces dependence on foreign oil and reduces the need for exploration and extraction of resources in environmentally sensitive zones in the United States and throughout the world.
Using green building materials reduces environmental pollution and the volume of hazardous waste. Energy efficient homes produce less pollution and reduce demand on energy production.
The federal government sponsors several lending programs that fund energy efficiency upgrades in both new and existing homes. Other programs allow costs of remodeling existing homes to be added to mortgages. The Department of Energy (DOE) oversees the Database of State Incentives for Renewable Energy (DSIRE) project, which lists utility providers and local, state and federal entities that provide incentives for energy conservation and use of alternative power.
The Energy Star Mortgage Program
The Environmental Protection Agency (EPA) sponsors the Energy Star program, which evaluates the energy usage of electronics, building materials and heating and cooling products. The Energy Star Mortgage program offers lower-cost loans for new homes that are designated "Energy Star" and also to owners of existing homes who want to make improvements that reduce energy usage. These mortgages include the costs of qualified improvements in the loan. Borrowers must meet income eligibility requirements. Some lenders offer discounts, attractive refinancing rates or reduced loan fees.
To qualify for the mortgage, borrowers of existing homes must complete an energy audit that assesses the existing energy usage and recommends ways to save energy. Existing and new home upgrades must reduce energy usage by at least 20 percent. Work must be completed within 90 days after closure of the mortgage. The program is available in several states, with more in the process of joining.
States that have not yet implemented the Energy Star Mortgage program may work with lenders who participate in an Energy Efficient Mortgage (EEM) program. Some lenders work through federal programs under Fannie Mae, the Federal Housing Authority (FHA) and the Veteran’s Administration (VA) that incorporate energy improvements as part of refinancing or buying a new home.
Department of Housing and Urban Development Energy Efficient Mortgages
The Department of Housing and Urban Development’s (HUD) EEM program allows borrowers who qualify for FHA loans to include 100 percent of costs of approved energy efficient improvements into refinanced or new mortgages. Borrowers reduce operating costs of a home through these improvements. The energy savings over the life of the loan must be more than the cost of improvements. The program is available in all 50 states.
Borrowers refinancing a home must complete an energy audit by a qualified energy rater. The audit evaluates the energy efficiency of the structure including levels of insulation, annual energy usage, types of windows and existing heating and cooling systems. The auditor prepares a Home Energy Rating Systems (HERS) report that details the overall efficiency of the house as it is, makes recommendations for upgrades and estimates energy usage after completing the upgrades.
Loans under the EEM program may exceed the maximum mortgage amount allowed by FHA to include the cost of improvements. Refinancing rates are determined by lenders approved under the HUD program.
Federal Housing Authority 203(k) Loans
FHA’s 203(k) loans are for properties on the market that need repairs or renovation that might otherwise be considered risky for lenders. The cost of repairs is financed into the loan. Borrowers who qualify for an FHA loan are eligible for the 203(k). A required down payment of 3.5 percent is based on the purchase price plus cost of repairs. The regular 203(k) mortgage is based on either the as-is value of the property plus the costs of repairs or 110 percent of the estimated value after completion of repairs. A streamlined mortgage allows lenders to finance up to $35,000 over the as-is value to cover the costs of rehabilitation. HUD stipulates that specific requirements such as energy efficiency standards must be met.
This article was provided by www.refinancemortgagerates.org