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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2008

It’s Getting Easier to Be Green

Energy-efficient mortgages can maximize buyer power and broker success

Higher energy prices are changing many homebuyer habits.

Mortgage brokers should take note of these developing trends, including the resurrection of the energy-efficient mortgage (EEM). Brokers who offer EEMs can help buyers reduce their energy costs and qualify buyers who might otherwise be turned down. These mortgages may be used for new construction or for purchasing and improving existing homes.

A Green Rule

New federal rules on energy efficiency may be in store: House Resolution No. 6078, the Green Resources for Energy Efficient Neighborhoods (G.R.E.E.N.) Act of 2008, was introduced this past May. Track the bill at tinyurl.com/hr6078.

Recent reports indicate that energy-efficient homes are selling for higher prices than comparable conventional homes. For instance, GreenWorks Realty of Seattle determined that in western Washington state, “environmentally certified” homes averaged a 4-percent-higher sales price and sold in 18-percent less time than similar, noncertified homes.

Further, nationwide, state and local governments are taking action to ensure that homebuyers have the facts they need about the cost of energy used in a home. For instance, California and Portland, Ore., are considering legislation to mandate that any home that is put on the market have a home-energy-rating certificate that indicates relative energy efficiency. The Boulder, Colo., city and county governments have gone one step further by specifying the actual energy-efficiency rating that new construction must meet.

To offer EEMs, brokers must find a lender with an EEM program and a certified home-energy rater. Conventional, Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) lenders may write these loans. Raters are certified in the Home Energy Rating System (H.E.R.S.) through the Residential Energy Services Network, whose ratings are recognized by the Environmental Protection Agency, the U.S. Department of Energy and the Internal Revenue Service.

EEM programs stretch the allowable payment-to-income and debt-to-income ratios by adding projected energy savings to the buyer’s income. For example, Fannie Mae extends the debt-to-income ratio to as much as 41 percent, as opposed to the more typical 36 percent. Fannie Mae, Freddie Mac, the FHA and the VA all have EEM programs, although they have slightly different limits and benefits.

For instance, FHA borrowers who qualify for Section 203(b) mortgage insurance are also eligible for an EEM. A certified H.E.R.S. rater must determine the cost of the energy improvements and energy-savings estimates. As much as $200 of the cost of an energy-inspection report may be included in the mortgage.

An EEM also can be used with the FHA’s Section 203(h) program for mortgages made to victims of presidentially declared disasters. In these cases, the program is limited to one-unit detached houses.

Borrowers under the FHA’s Section 203(k) rehabilitation program also may qualify for an EEM. Here, the additional loan amount is used for energy-efficiency improvements rather than generic rehabilitation. Improvements can be included in a borrower’s mortgage if their total cost is less than the total dollar value of the energy that will be saved during their useful life. The cost of the improvements eligible for financing is currently either 5 percent of the property’s value (not to exceed $8,000) or $4,000 -- whichever is greater.

Brokers who work together with a Realtor, a certified rater and an EEM lender can clear the way for buyers into their energy-efficient homes. 


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