ENERGY EFFICENT MORTGAGES PART #2

The Good & the Bad News of Energy Efficient Mortgages (EEM’s). EEM’s do exist, but to be honest I have not been able to find a single person who has done one. I am sure they out there, but they are far and few in-between.

Homeowners can take advantage of EEM to finance a variety of energy efficiency measures, including renewable energy technologies, in a new or existing home. The U.S. federal government supports these loans by insuring them through Federal Housing Authority (FHA) or Veterans Affairs (VA) programs. This allows borrowers who might otherwise be denied loans to pursue energy efficiency improvements, and it secures lenders against loan default.

In general, the idea is that the EEM allows the lender to:
1. Finance above the appraised value
In theory, this sounds like a reasonable idea. Then the appraiser does not necessarily have to take into account the energy efficient items and the lender can exceed the appraised value. In practicality, in the current real estate market, mortgage underwriters are already panicked about valuation after the last few years. Trying to explain this process to a mortgage underwriter who is not familiar with an EEM is like to talking Greek to a Texan. You just get that blank stare or silence on the other end of the telephone. As mentioned earlier, as “green” building gains some momentum and the industry gets trained, I am sure this will not be as big of an issue. For now, at Amaris, we make our best effort to build the cost into the normal appraisal and by-pass this entire headache.

2. Stretch the debt to income ratio for qualification
Again, similar to financing in excess of the appraised value, stretching the debt to income has the same challenges with the mortgage underwriter. Some programs allow this stretching the debt to income ratio, while other programs do not. The idea is that an energy efficient home will have lower utility bills forever. If you qualify for a mortgage of 2,500.00 per month and the utilities are going to be 250 per month, it only makes sense that a 2,600 per month mortgage payment with 150 per month utilities should not be a problem. With our customers, we do not stretch them in the qualification process and to be honest the trend by customers is fiscal prudence and they would not necessarily want to stretch financially anyway.