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A Lender’s Guide to Energy Efficient Mortgages (EEMs). What is an Energy Efficient Mortgage (EEM)?. An EEM is: an FHA/VA loan program that recognizes the energy efficiency of a home allows 100\% financing of cost effective energy upgrades into the mortgage

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what is an energy efficient mortgage eem
What is an Energy Efficient Mortgage (EEM)?
  • An EEM is:
  • an FHA/VA loan program that recognizes the energy efficiency of a home
  • allows 100% financing of cost effective energy upgrades into the mortgage
  • can be used when purchasing or refinancing an existing home
  • the borrower does not have to qualify for this amount and no additional down payment required

Energy Efficient Mortgages

why should a lender finance an eem
Why Should a Lender Finance an EEM?*
  • Larger and More Profitable Loans
  • When underwriting FHA and VA EEMs, lenders can exceed the federal loan limits up to the amount of the energy improvements.
  • This equates to higher loan amounts which = higher loan origination fees, etc.

Energy Efficient Mortgages

why should a lender finance an eem4
Why Should a Lender Finance an EEM?*
  • New Business from Trade Ally Partnerships
  • Yes, that’s us!
  • Developing relationships with home energy rating programs, energy efficient builders, utilities and vendors of energy efficient products creates business opportunities for lenders.
  • Bottom Line:
  • The EEM product creates an increased client pool from referrals.

Energy Efficient Mortgages

why should a lender finance an eem5
Why Should a Lender Finance an EEM?*
  • Lenders Can Qualify More Buyers
  • More people can qualify to purchase an energy efficient home than could qualify for the same house if it were not energy efficient or roll the cost of the energy upgrade of an existing home into the mortgage loan.

Energy Efficient Mortgages

why should a lender finance an eem6
Why Should a Lender Finance an EEM?*
  • No Great Increase in Paperwork
  • We know… seems too good to be true!
  • Under new Fannie Mae, Freddie Mac, FHA and VA guidelines, the underwriting process is reasonable and straight forward. Only one new form is required and that form is prepared by us, the home energy rater!

Energy Efficient Mortgages

why should a lender finance an eem7
Why Should a Lender Finance an EEM?*
  • Lower Utility Bills Lead to Lower Client Defaults
  • Since your customers will have lower utility bills, they will have more financial resources to put towards their mortgage.
  • This should result in fewer defaults.
  • * Source: Florida Solar Energy Center. http://www.fsec.ucf.edu/en/consumer/buildings/ratings/eem/overview.htm

Energy Efficient Mortgages

why would a buyer use these programs
Why would a buyer use these programs?
  • By making energy efficient improvements to an existing home, the buyer benefits immediately:
  • Live in a more comfortable and quieter home
  • Lower utility bills, making home ownership more affordable
  • Home will be cooler in summer and warmer in winter
  • Home will have increased value based on the improvements
  • Upgrades are financed at the low mortgage rate

Energy Efficient Mortgages

why eems
Why EEMS?

Disconnected Ducts

(not that uncommon)

Open Return

Energy Efficient Mortgages

slide10
Lack of Insulation =

Heat Flows to the Outside on a Cold Day

Or to the Inside on a Hot Day

Energy Efficient Mortgages

slide11
Crumpled Ducts

Is there a cold room in the house?

Heated Air Leaking into Unconditioned Space!

Unsealed Ductwork-where is that attic dust going?

Energy Efficient Mortgages

slide12
Who wants to breathe this air?

Energy Efficient Mortgages

who can qualify
Who can qualify?
  • Anyone who qualifies for an FHA or VA loan will automatically qualify for an EEM.
  • The EEM may be used with sections 203b, 203k and 203k streamline rehabilitation programs, 234c condominium projects, and 203h mortgages for disaster victims.

Energy Efficient Mortgages

financing limits
Financing Limits
  • 5% of property value,
  • not to exceed $8,000, or
  • $4,000, whichever is greater
  • Area Loan Limit for Stanislaus County is approximately $276,000* for CY 2009
  • *Subject to change

Energy Efficient Mortgages

how much does an eem report cost
How much does an EEM report cost?
  • The cost will vary by region with a range from $250 - $600.
  • The variables include size of home, diagnostics performed.
  • The process includes a site visit by a certified rater, data collection and entry into an energy modeling program (CHEERS® Rate Tool).

Energy Efficient Mortgages

the cheers rate tool report
The Cheers® Rate Tool Report

Your Client

Your Client

Your Client

Your Client

Energy Efficient Mortgages

who pays for the eem report
Who Pays for the EEM Report?
  • Any of the principals in the real estate transaction may pay for the Analysis.
  • The fee may be paid:
  • at time of site visit
  • paid as a non-recurring closing cost, or
  • financed as part of the “cost effective” improvements in the EEM funds.

Energy Efficient Mortgages

do the added eem funds increase the monthly mortgage payment
Do the added EEM funds increase the monthly mortgage payment?
  • Yes, this increase is offset by the increased operating efficiency of the home.
  • Mortgage Payment
  • But…
  • Utility Bills

Energy Efficient Mortgages

who chooses which improvements are included in the eem
Who chooses which improvements are included in the EEM?
  • The buyer selects a package from cost effective upgrades. This requires a consultation between the Certified Rater Analyst and the buyer.

Energy Efficient Mortgages

will this cause a delay in closing the loan
Will this cause a delay in closing the loan?
  • Using an EEM should not delay the loan process in any way.
  • However, this process should get started as soon as possible after escrow has been opened.

Energy Efficient Mortgages

when are the improvements installed
When are the improvements installed?
  • Improvements may be installed only after close of escrow.
  • The EEM funds can be held by either the Lender or the Escrow Company in a holdback account.
  • The improvements must be installed within 90 days (FHA) or 120 days (VA) after close.

Energy Efficient Mortgages

who does the improvement work
Who does the improvement work?
  • The work is typically performed by local licensed contractors.
  • The buyer/owner may select their own contractors and must provide firm bids to the lender before loan documents are drawn.

Energy Efficient Mortgages

questions
Questions?

Energy Efficient Mortgages

douglas beaman associates
Douglas Beaman Associates

Energy Efficient Mortgages

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