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					                                         Energy Efficient
                                         Home Owner Guide
                                          Buying       Refinancing
                                          Selling      Remodeling

                 Home Loans                      Department of

                                         WHO BENEFITS FROM THE ENERGY
                                         EFFICIENT MORTGAGE?
When you are buying, selling,
                                           Qualify for a larger loan on a better
refinancing, or remodeling your home,
you can increase your comfort and
                                           Get a more comfortable home NOW.
actually save money by using the
                                           Save money every month from Day
Energy Efficient Mortgage (EEM). It is
easy to use, federally recognized, and
                                           Increase the potential resale value of
can be applied to most home
                                         your home.
mortgages. EEMs provide the
borrower with special benefits when
purchasing a home that is energy
                                          Sell your home more quickly.
efficient, or can be made efficient
                                          Make your house affordable to more
through the installation of energy-
saving improvements.
                                          Attract attention in a competitive

Home owners with lower utility bills
                                       Get all the EEM benefits without
have more money in their pocket each
month. They can afford to allocate a
                                       Make improvements which will actually
larger portion of their income to
                                     save you money.
housing expenses. If you have more
                                       Increase the potential resale value of
cash, why not buy a better, more
                                     your home.
comfortable home? There are two
options with the Energy Efficient
Mortgage.                   Pay for energy improvements easily,
THE TWO SIDES OF THE EEM through your mortgage. Your lender can
                            increase your loan to cover energy
                            improvement costs. Monthly mortgage
Finance            Increase payments increase slightly, but you
energy             your     actually save money because your
improvements       buying energy bills will be lower!
!                  power!

 Cost-effective                 Stretch
energy-saving                 debt-to-
measures may                  income
be financed as                qualifyin
part of the                   g ratios
mortgage!                     on loans
  Make an                     energy-
older, less                   efficient
efficient home                homes! An EEM can only be done if an official
more                                    home energy rating, or HERS Report,
comfortable                     Qualify indicates that it will save you money.
and affordable!               for a
                              Buy a

HERS, or Home Energy Rating Systems                THIS IS WHY THE EEM
A HERS report is similar to a miles-per-gallon
rating on a car. HERS are program s which          Energy-efficient homes cost less to
provide evaluations of individual homesÕ           own than non-efficient homes,
energy-efficiency. A HERS report is prepared       though they may start off with
by a trained Energy Rater. Factors such as         higher price tags.
insulation, appliance efficiencies, window
types, local climate, and utility rates are used
                                                            Older      Same Home
to rate the home and calculate energy costs.
                                                           existing    with energy
A HERS Report
                                                              home improvements
                                                   Home      $150,000 $154,816
  Overall Rating                                   price
Score of the house                                 (90%
as it is.                                          mortgage,
  Recommended                                      8%
cost-effective energy                              interest)
                                                   Loan                $    $139,334
  Estimates of the
                                                   amount           135,000
cost, annual savings,
and useful life of upgrades.                       Monthly             $991          $1023
  Improved Rating Score after the installation     payment*
of recommended upgrades.                           Energy            +$ 186          +$ 93
  Estimated annual total energy cost for the       bills
existing home before and after upgrades.
                                                   The true  $ 1,177                $ 1,116
Rating scores are between 1 and 100. Higher
                                                   cost of
scores indicate greater efficiency. Cost-
effective upgrades are those which will save
more money through energy savings than
they cost to install.                              Monthly                -           $ 61
U.S. Department of Energy recommended
Home Energy Ratings contain a numerical
score from 1 to 100, a one to five star-plus     * Estimated mortgage payments are based upon
rating, and the estimated energy costs.          principle and interest only, and do not include
                                                 taxes and insurance. Value indicated here are for
Higher scores indicate greater efficiency.       example only, and will vary from home to home.
Cost-effective upgrades are those which will
save more money through energy savings           Many homes qualify for energy
than they cost to install.                       upgrades.

A HERS rating usually costs between $100         This home qualified for $4,816 in
and $300. This could be paid for by the buyer,   upgrades. With the EEM, lenders
seller, lender, or real estate agent.            recognize the savings the
Sometimes the cost of the rating may be          upgrades will bring. Borrowers
financed as part of the mortgage. No matter      may use these potential savings
how the rating is paid for, it is a very good    like extra cash, and add the cost
investment because an EEM could save you         of upgrades into the mortgage,
or your buyer hundreds of dollars each year.     paying them off easily as part of
                                                 the monthly mortgage payment.
                                                 Once the upgrades are installed
                                                 the potential savings turn into real

                                                 The other EEM option is for the
                                         lender to stretch debt-to-income
                                         qualifying ratios to allow a larger
                                         loan for a house that is already
                                         energy efficient. A debt-to-income
                                         ratio "stretch" means that a larger
                                         percentage of the borrower's
                                         monthly income can be applied to
                                         the monthly mortgage payment.
                                         That means the buyer has more
                                         borrowing power based up on the
                                         same income.


For a standard home without
energy improvements:

Buyer's total monthly $3,000 $5,000

Maximum allowable    $840   $1,400
payment 28% debt-
to-income ratio:

Maximum mortgage $132,9 $221,5
at               00     00
90% of appraised
home value:

For an energy-efficient home:

Buyer's total monthly $3,000 $5,000

Maximum allowable    $900   $1,500
monthly payment
30% debt-to-income

Maximum mortgage $142,4 $237,3
at 90% of appraised 00  00
home value:
Added Borrowing $9,500 $15,80
Power Due                       0
to the Energy
Efficient Mortgage:
Mortgage Rate of 7.5% · Down
Payment of 10% · 30 Year Term
Principal & Interest Only · Tax &
Insurance Not Factored


Federal Housing Administration                 ADDING ENERGY
(FHA) EEMs                                     IMPROVEMENTS
                                             THROUGH THE HOME
                                       "The EEM was the second best thing
The FHA Energy Efficient Mortgage      that ever happened to me. The first
covers upgrades for new and existing   best was actually being able to buy a
homes and is now available in all 50   home. This is our first home, and the
states. Key features includes:         EEM saved us a lot of headaches
                                       because we knew what we needed
                                       to do to the house. It's nice and
                                       comfortable now. Even my dogs are
  Loan limits may be exceeded          happy. I am very impressed."
  No re-qualifying                     - Pat Theard
  No additional down payment           ---------------------------------------- -------
  No new appraisal                             ---------------------------------
  $4,000 or 5% of the property value
(up to $8,000) may be financed         First-time home buyers Patricia and
                                       Mynette Theard purchased their
                                       home in California. It was built in
                                       1940, and sold for $150,000. They
                                           got an FHA loan for 95% of the value
203(k) FHA Home Rehabilitation             of the property. The lender saw an
Loans                                      opportunity for them to improve on
                                           their investment and recommended
                                           an Energy Efficient Mortgage.
The FHA 203(k) program enables a
home buyer or investor to obtain a
single loan to finance both property       A HERS Rating on the home
acquisition and complete major             recommended $2,300 in energy
improvements after the time of loan        improvements including ceiling, floor
closing. Can be used in conjunction        and furnace duct insulation, plus a
with the FHA EEM. Key features             setback thermostat. The lender set
include:                                   aside an extra $2,300 for the
                                           improvements, bringing the total loan
                                           amount from $142,500 to $144,800.
                                           The loan closed, the Theards moved
  Loan limits may be exceeded              in, and the improvements were
  Total cost of improvements must          installed. The monthly mortgage
exceed $5,000                              payment increased by $17, but the
                                           Theards are saving $45 each month
                                           through lower utility bills.
Veterans Affairs (VA) EEMs
                                           Ask your lender about an Energy
                                           Efficient Mortgage. If they are not
                                           knowledgeable about the EEM,
The VA Energy Efficient Mortgage is        encourage them to learn about it, or find
available to qualified military personnel, another lender.
reservists and veterans in all 50 states
for energy improvements when
purchasing an existing home. Key
features include:                          Call the organizations listed on the back
                                           of this booklet. Find out how they can
                                           use the EEM to your benefit when you
                                           buy, sell, refinance or remodel your
  $3,000 of upgrades may be financed home!
based solely on documented costs
  Up to $6,000 may be financed if
upgrades are deemed cost effective

Fannie Mae and Freddie Mac EEMs
Fannie Mae secondary market
guidelines permit approved lenders to
increase ratio s two percent on the
debt-to-income requirements for Energy
Efficient Mortgages. An expanded
qualifying ratio helps purchasers who
are "maxed-out" on their income ratios.
Freddie Mac allows a lender to use the
projected utility savings as a
"compensating factor."

WHICH BUYERS AND HOMES ARE                Case Study:

All buyers who qualify for a home loan             ADDING ENERGY
qualify for the EEM. The EEM is                    IMPROVEMENTS
intended to give the buyer additional             THROUGH A HOME
benefits on top of their usual mortgage              REFINANCE
deal. The lender will use the energy-     "It's wonderful. We're just amazed at
efficiency of the house, as determined    the difference. WeÕve hardly used
by a HERS rating, to determine what       the furnace all winter. The house is
these benefits will be.                   much quieter too. It makes sense for
                                          everyone to do it."
Energy Efficient Mortgages can be         - Caroline Chang
done on most homes. Availability is       ---------------------------------------- -------
not limited by location, home price or            ---------------------------------
utility company. EEMs can be done         In the fall of 1995, Caroline and
on government (FHA and VA)                Tommy Chang decided to refinance
conventional, Portfolio and Jumbo         their 35-year-old home to take
Loans. Your lender will help you          advantage of lower interest rates.
choose which loan type is best for        Their lender suggested they get a
you.                                      HERS Rating on the home so they
                                          could finance energy improvements
Get an EEM on:                            through their new mortgage deal as
 Older homes qualifying for upgrades
 New or old homes not requiring
 New construction                         The lender increased the loan by
                                          $8,760 to cover the cost of energy
SOME THINGS TO KEEP IN MIND               improvements. Their final loan
                                          amount was $176,400, which is
                                          higher than they could have gotten
                                          with out the EEM. The loan closed
                                             and the improvements were installed.
It is best to have the HERS Rating done      These included double-paned
as early in the loan process as possible.    windows, wall insulation, ceiling
This way, the Rating can be performed        insulation, furnace duct repairs and
while other aspects of the loan are          insulation, and a few smaller items.
being processed. Closing the loan            These improvements, combined with
should not be delayed.                       their lower mortgage interest rate,
                                             mean the Changs will be saving
                                             about $230 per month. They will be
                                             more comfortable too!
You may get a larger tax deduction with
the EEM because the interest on
mortgage payments is tax deductible.     A house could be your biggest
This can save you more money than        investment ever. Use the Energy
paying for energy upgrades with a        Efficient Mortgage and invest wisely.
credit card, bank loan, or cash, none of
which are usually tax deductible.

Each house is as unique as its owner.       To find out how, call the organizations
Benefits derived from the EEM will vary     listed on the back cover.
from one house to another, and the
benefits in the examples in this book       Disclaimer Statement
                                            Pacific Gas and Electric Company and the
may not apply in all cases. Your lender
                                            Department of Energy do not endorse nor imply
will be your best source of information     endorsement of any product, service, individual
on your own EEM benefits.                   or company mentioned and/or involved in this
                                            publication. Anyone undertaking to rely on
                                            particular details contained herein shall do so at
                                            his/her own risk and should independently use
                                            and/or verify their applicability to a given
                                            U.S. Department of Energy funds were not used
                                            for the printing of this four-color brochure.
                                            Pacific Gas and Electric Company, 1996, all
                                            rights reserved.

Produced cooperatively by                   Distribution assistance provided by
U.S. Department of Energy
Office of Building Technology,              Countrywide Home Branch Locator
State and Community Programs      
1000 Independence Avenue S.W.
Washington, DC 20585                        Countrywide Home Loans, Inc.
1-800-363-3732                              CMD Secondary Markets/Product                 Deployment & Pricing Support
                                            6400 Legacy Drive, PTX 66
Additional assistance provided by           Plano, TX 75024
Alliance to Save Energy                     (800) 669-6020
1200 18th Street, N.W., Suite 900           (972) 608-1602
Washington, DC 20036          
1-202-857-0666                 Additional information available from
                                        U.S. Department of Housing and Urban
Additional information available from   Development
Federal Citizen Information Center      Office of Insured Single Family Housing
Pueblo, CO 81009                        451 7th Street, S.W.
1-888-8-PUEBLO (1-888-878-3256)         Washington, DC 20410               Consult your local phone directory

                                        Additional information available from
                                        U.S. Department of Veteran's Affairs
                                        810 Vermont Avenue, N.W.
                                        Washington, DC 20420