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What’s an Energy Mortgage?

Feb 14, 2014

Americans are getting smarter when it comes to energy efficiency, especially when it comes to buying a home. More and more homebuyers are demanding to know about a home’s energy performance by its Home Energy Rating System (HERS®) Index Score to better gauge its affordability before buying. Consumers understand that high energy costs impact directly on the cost of a home, which is why they are actively searching for energy efficient homes. What many don’t know, however, is that they can take advantage of an energy mortgage to help finance the cost of that energy efficient home at a competitive rate.

Types of Energy Mortgages

There are two kinds of energy mortgages available to homeowners and buyers:

  1. Energy efficient mortgages: For financing homes that are already energy efficient.
  2. Energy improvement mortgages: For financing energy improvements to existing homes to increase their energy efficiency.

Why Get an Energy Mortgage?

There are a number of tangible benefits to energy mortgages, such as:

  1. Greater purchasing power: Energy mortgages enable home buyers to finance and include cost effective energy saving measures as part of their mortgage. Borrowers can also qualify for larger loan amounts, allowing them to buy better, more energy efficient homes.
  2. Affordable energy efficient upgrades to existing homes: Building energy efficiency improvement costs into the mortgage means lower down payments. Borrowers can put money saved through lower utility bills towards paying down their mortgage.
  3. Increased home values: A recent study by the Earth Advantage Institute, “found that newly constructed homes with third-party certifications for sustainability and energy efficiency sold for 8% more on average than non certified homes in the six-county Portland metropolitan area. Existing houses with certifications sold for 30% more.”

Where to Get an Energy Mortgage

Energy mortgages are available through federally insured mortgage programs such as the Federal Housing Administration and the Veterans Administration, and also through conventional secondary mortgage markets like Fannie Mae and Freddie Mac. To qualify for an energy mortgage, an energy rating must first be done on the home in question.

ENERGY STAR offers energy mortgages as well. ENERGY STAR mortgages allow borrowers to finance energy-saving improvements to their homes without paying more than they would for a typical mortgage. Other benefits include:

  1. Discounted mortgage rates: Borrowers can take advantage of lower mortgage rates than what they would normally get if applying for a standard home loan.
  2. Reduced loan fees: ENERGY STAR mortgages generally offer lower fees than standard ones.
  3. Assistance with closing costs: Participating lenders may also provide an added benefit by offering closing cost discounts.