Andrew Korfhage

When Pat and Mynette Theard bought their first home in Oakland, California, they originally qualified for a conventional loan of $142,500.  Then they had the house rated under the Home Energy Ratings System (HERS) and found more than $2,000 worth of improvements that could make their new home more energy-efficient, from installing a new type of thermostat to improving floor and furnace duct installation.  They switched their home-buying strategy to pursue an Energy-Efficient Mortgage (EEM), which allowed them to add $2,300 of improvements into their mortgage total and qualify for a higher loan. 

With the EEM, the Theards’ down payment stayed the same, their monthly mortgage payment increased slightly, and the house’s energy bills dropped considerably.  The bottom line is that the Theards are saving about $45 a month over what they would have been spending on a lower mortgage with no improvements—and they’re using less energy every day.

 “The EEM was the second best thing that ever happened to me,” Pat Theard told the US Department of Housing and Urban Development.  “The first best was actually being able to buy a home.  This is our first home, and the EEM saved us a lot of headaches because we knew what we needed to do to improve the house.  It’s nice and comfortable; even my dogs are happy.  I am very impressed.”

 The EEM is the most commonly used of several best-kept-secret loan options for homeowners who want to save energy, save money, and qualify for larger loans—all at the same time.  Here are descriptions of four of them you can take advantage of next time you’re in the market for a home:

 The EEM 

The Energy-Efficient Mortgage began in 1995 as a Federal Housing Authority (FHA)-insured lending program for existing and new houses, from single-family to four-family properties.

 Borrowers who wish to qualify for an EEM must have a HERS rating taken by an eligible energy consultant to find out what their new house might need to become maximally energy-efficient.  The HERS rating can cost up to $400 and can be included in the mortgage.  Once that is complete, borrowers can then become eligible to have as much as five percent of the property’s value—up to $8,000—added onto their loan.  There is no re-qualifying necessary, no new appraisal, and no change in down payment, and original loan limits can be exceeded.

 The maximum mortgage limit for the program is $160,950, and applications must be submitted to your local HUD Field office.  The HUD Web site lists contact information for its local branches, as well as FHA-approved leaders: www.hud.gov.

 Items normally considered for your HERS rating and improvable through your EEM include:  insulation in walls, around water heaters, and around ducts and pipes; caulking and weather-stripping; double- or triple-pane windows; window shading or landscaping for sun control; storm windows and doors; energy-efficient heating, cooling, lighting systems, and appliances; solar energy systems for water heating, space heating, and cooling; and building designs that minimize energy use, such as earth sheltering and passive solar features. 

The EEM is also available to existing home-owners who wish to refinance their homes and make energy improvements at the same time. 

Mortgage Increase for Solar 

If you qualify for either of the FHA’s most popular non-EEM mortgages, but you plan to purchase or renovate a home with solar energy technologies, you can raise your maximum loan limit by 20 percent based on a little-used 1978 addition to FHA loan regulations. 

Under the 1978 congressional authorization, the FHA began allowing for larger loan ceilings for solar-powered homes financed through the 203(b) and 203(k) sections of FHA standard regulations, provided the homes were also equipped with a 100-percent operational conventional back-up system.  (For state tax incentives for going solar, visit www.dsireusa.org.) 

The FHA Loan 203(b) is the most popular FHA program, which you may use to purchase new or existing homes from single- to four-family properties, repaid in monthly payments over 15 to 30 years.  According to the FHA, “everyone who has a satisfactory credit record, enough cash to close the loan, and sufficient income to make monthly mortgage payments can be approved for a section 203(b) mortgage.” 

An FHA Loan 203(k) mortgage is similar to a 203(b), but allows you to purchase a home with a loan larger than the purchase price to finance rehabilitations. 

To find your county’s maximum loan limit, visit www.fhatoday.com/mtg_limits.htm.  Add 20 percent to find your maximum if you’re considering purchasing a solar home or rehabilitating a home with solar capabilities.  Applications must be submitted through the FHA. 

The Energy Star Mortgage 

The Energy Star mortgage combines the features of conventional mortgages or EEM with at least one additional feature—such as interest rate discounts, closing cost discounts, fee waivers, and coverage of HERS rating costs.  These mortgages are designed to encourage borrowers to purchase homes certified by the federal Energy Star program. 

Energy Star homes are certified by the Energy Star program to be at least 30 percent more energy efficient than required by the 1993 National Model Energy Code, or 15 percent more efficient than required by the house’s state energy code, whichever is the higher standard.  To know if a house has been certified by Energy Star, check its circuit breaker box, which should be marked with the Energy Star label. 

Visit the Energy Star website at www.energystar.gov and search under the “New Homes Partner Locator” to find lenders who offer Energy Star incentives. 

State and Local Level Programs 

In addition to the FHA and Energy Star programs noted above, 23 states also offer various state and local loan incentives for energy-efficient homeowners or homeowners using solar technology, especially solar hot water heaters.

 For example, the city of Sacramento’s Municipal Utility District (SMUD) provides $400 rebates to customers who finance a solar hot water heater through SMUD’s loan program.  The Kentucky Solar Partnership offers low three-percent interest loans to Appalachian residents who purchase a solar hot water heater, and in Oregon, the Emerald People’s Utility District offers a zero-percent interest loan for solar water heaters, which can then be combined with the state’s $1,500 tax credit for installing solar technology.

 Other examples of state level loan incentives include loans at three percent below prime for residential energy improvements in Mississippi, zero-percent ten-year loans for solar photo-voltaics or wind power systems in Wisconsin, and zero-percent five-year loans for photo-voltaics or solar water heaters in Colorado.

 To find current loan programs in your state, visit the Database on State Incentives for Renewable Energy at www.dsireusa.org.