Energy Efficient Mortgages Can Counter the Effects of Increasing Mortgage Rates and Soaring Energy Prices
Consumers looking to buy or renovate a home have every reason to consider including energy efficiency in the design. Fuel prices are at record highs, and the impact of this is only just beginning to hit consumer pocketbooks. Meanwhile mortgage rates are on the rise meaning that the amount of money for which a consumer may qualify is declining. However, consumers can actually lower their energy bills and qualify for larger loans by adding energy efficiency financed through energy efficient mortgages (EEMs). Energy efficient windows can reduce heating and cooling energy costs by up to 30%, so EEMs are a great vehicle to finance window upgrades in both new and existing construction.
How EEMs Work
Banks offering EEMs recognize that energy efficiency will lower a consumer’s energy bill, and that consequently a consumer has more cash available for a larger mortgage payment. “After the mortgage payment, the monthly utility bill is usually a family’s next largest housing-related expense,” reports Michelle Desiderio, Senior Product Developer at Fannie Mae, the nation’s largest source for home mortgage funds. EEMs also encourage the use of utility and manufacturer rebates, by allowing these rebates to be applied toward the loan transaction under some programs. Here’s a comparison of a regular mortgage and an EEM from Fannie Mae:
Comparison of Standard and Energy Efficient Mortgages
| Non Energy-Efficient Home | Energy-Efficient Home | |
|---|---|---|
| Purchaser Price | $200,000 | $203,000 |
| Borrower Contribution | $6,000 | $6,090 |
| Loan Amount | $160,000 | $162,400 |
| Interest | $5.85% | 5.85% |
| Monthly PITI | $1673 | $1698 |
| Average Electric Bill | $186 | $93 |
| Total Expenses | $1859 | $1791 |
| Qualifying Income | $49,000 | $48,584 |
| Monthly Savings | $68 |
Source: Fannie Mae
Although this example assumes that it will cost more to build an energy efficient home, Fannie Mae has found that many builders are able build efficient homes without extra charges. This means the savings to the consumer could be even greater.
The Benefits of EEMs
There are a number of benefits in using EEMs according to Steve Baden, Executive Director of Residential Energy Services Network (RESNET), an organization dedicated to qualifying more families for home ownership and improving the energy efficiency of the nation's housing stock by expanding the national availability of mortgage financing options and home energy ratings. Baden reports that increasing the number of energy efficient homes through EEMs helps to:
- Qualify more first time home buyers for mortgage loans
- Reduce the cost of home ownership
- Reduce America’s dependence on imported oil and aid the environment
Baden reported that a recent analysis by the Environmental Protection Agency found that an average of 6.8% more families would be able to qualify for a mortgage through an energy efficient mortgage.
Greater Accessibility to EEMs
EEMs are offered through several different programs in the secondary mortgage market. Fannie Mae, Freddie Mac, Housing and Urban Development’s Federal Housing Administration and the Veteran’s Administration offer different programs to increase energy efficiency through EEMs.
The number of banks offering this type of mortgage product has grown significantly in recent years. Desiderio reports a trend in larger banks now offering EEMs. Countrywide Home Loans and Wachovia have been strong partners in promoting energy efficient mortgages and Citibank has recently joined the ranks of companies offering EEMs. “Fannie Mae is excited that Citibank—a financial leader—is promoting EEMs,” Desiderio reported. “This is helping to increase accessibility to EEMs for homeowners across the nation.”
Resources for Manufacturers
For consumers looking to add energy efficient windows to a new design or to upgrade existing windows, cost is an important part of the decision process. Sales forces can help consumers make the decision for energy efficiency by educating them about the availability of EEMs.
Fannie Mae has a wide range of products to choose from. The company has designed a brochure that can be downloaded from the web or is available for bulk ordering that makes EEMs easy for consumers to understand. You can find out more about these products at www.efanniemae.com.
RESNET has compiled information on available products into one location online at www.natresnet.org. RESNET also provides a searchable list for home energy raters who can help consumers identify energy efficiency measures and evaluate the performance of the home to help qualify homeowners for EEMs.
