Using an EEM to install energy efficiency up front means that while paying the same or less each month to the mortgage rather than to the utility bill, that money, instead of going “up the chimney” in heating or electricity bills, goes into building value in the home. The advantage to the EEM is that the energy savings is counted as income to determine the loan/income ratio, thus allowing a larger loan. There is no extra cost, but considerable extra benefit to the homeowner, not to mention the benefit to the environment. Essentially, you are buying a more valuable house at no extra cost.
Part of the benefit, of course, is that it is far less expensive to install upgrades in new construction as the home is built, or, for existing homes, all at once, rather than piecemeal as funds become available.
The argument becomes more persuasive as buyers become more energy conscious. No one would buy a new car without asking about gas mileage; home values will vary more with energy efficiency as buyers factor in energy costs for existing homes by asking for a year’s worth of utility bills.
Please note that the government does not necessarily have to be involved in an EEM except to the extent that anyone installing energy upgrades would take advantage of the various tax credits offered by states and the feds which are available to everyone whether working with an EEM or not. Private mortgage brokers can offer the same advantage since the only “extra” concern is validating energy savings through a HERS report. The EEMs offered through VA and FHA have limited amounts but also do not require the down payment or the loan/income ratio to be increased. Private brokers may have different requirements.
Simply paying cash for upgrades is clearly less expensive in the long run, since the energy cost savings becomes extra income once you exceed the “payback” period. The same is true of the house itself, although there is also an advantage in the mortgage interest tax savings.
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Nancy Evenson, AIA
nancy@evensonarchitecture.com
Original Message:
Sent: 01-26-2016 17:35
From: Matthew Spinner
Subject: Energy Efficient Mortgages
As as first-home purchaser and architectural designer, this is the first I have heard of mortgage options such as this. I am currently in TX and the lending companies I am working with have not mentioned this as an option. The mortgage and home-buying process is very complicated and people, in general, tend to stick to processes that they know will give them a suitable outcomes. My wife and I are looking to rejuvenate single-family homes in the area and this is a great option to help promote sustainability within upgraded systems. My overall question is, how would you get the real estate market to recognize the investment in the individual mortgage when compared to other homes in the neighborhood? Would the general home buyer recognize this as investment wealth? These could be questions that the lending companies are asking themselves when it comes to the risk associated with new technologies.
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Matthew Spinner Assoc. AIA
Intern Architect
ForrestPerkins
Dallas TX