While a conventional mortgage is generally based on a debt-to-income ratio of 28% gross income for housing and no more than 36% for all debts, the Energy Efficient Mortgage (EEM) recognizes that energy efficient homes cost less to operate on a month-to-month basis than standard homes.

Therefore, it allows lenders to adjust the ratios or qualify the buyer for a larger loan, since less money will be spent on energy costs. This is done by applying Home Energy Rating System (HERS) reported energy savings as income in underwriting the loan. To get an EEM from a lender, a borrower typically has to have a home energy rater conduct a standard measurement of the home´s energy efficiency. Certified by a RESNET (Residential Energy Services Network) accredited home energy rating system, the home energy rater inspects the home and measures its energy characteristics, such as insulation levels, window efficiency, heating and cooling system efficiency, etc. A performance test, such a blower door test measuring door and duct leakage, may be used. The home receives a point score between 1 and 100, depending on its efficiency.

EEMs are typically used to purchase a new home that is already energy efficient, such as an ENERGY STAR qualified home. The term EEM is commonly used to refer to all types of energy mortgages including Energy Improvement Mortgages (EIMs), which are used to purchase existing homes that will have energy efficiency improvements made to them. EIMs allow borrowers to include the cost of energy-efficiency improvements to an existing home typically up to about 15% of the appraised value. EIMs allow the borrower to use the money saved in utility bills to finance energy improvements.

Therefore, the benefit for homebuyers to utilize EEM´s comes from realizing the benefit of lower utility bills qualifying for a more expensive home and knowing that their home´s carbon footprint is smaller. Although efforts are active to enhance EEM products by offering reduced interest rates, this so far has not materialized in any significant way.

As a certified Eco-Broker, we am cognizant of the latest energy and environmental systems and approaches. Let us apply this expertise to help you realize efficiency, savings and peace-of-mind associated with your home month after month!