According to the National Association of Realtors, parents gifting money to their children to help purchase a first home is a common experience. Gifting money is a type of down payment assistance that can help them realize their dreams of homeownership.
What is an energy-efficient mortgage?
More people are becoming interested in “going green” when it comes to their homes. There are many benefits of living in an energy-efficient home, including a higher quality of life, lower utility costs, and higher appraised home values.
Homeowners can reduce energy waste by sealing their doors and windows to keep cool and warm air in, washing full loads of laundry with cold water, unplugging idle electronics, and switching to LED light bulbs, among other strategies.
Making improvements like upgrading appliances and HVAC systems makes the home more comfortable, saves money, and includes benefits such as tax incentives and energy-efficient mortgages (EEM).
Energy-efficient mortgages offer the same goal—to purchase or refinance a home that is already energy-efficient or finance energy-efficient improvements to an existing home.
Conventional energy efficient mortgage
A conventional energy efficient mortgage from Fannie Mae, also known as the HomeStyle® Energy mortgage, allows you to use up to 15% of the “as-completed” value of the property for energy improvements. Covered improvements include:
- Energy efficiency
- Water efficiency
- Renewable energy
- Home resilience/natural disaster readiness
This can all include smart thermostats, water-saving toilets, energy-efficient windows and doors, solar panels, and retrofitting home foundations.
FNMA HomeStyle Energy also offers options to payoff higher-interest energy improvement debt as a rate and term transaction versus considering it a cash-out refinance.
FHA energy efficient mortgage program
The FHA’s energy-efficient mortgage program (EEM) is designed to help families save money on their utility bills. Both buyers and sellers benefit from this program as buyers can get their homes improved right away, and sellers can make their homes more affordable and sell faster.
Under the EEM program, the FHA insures a borrower’s mortgage used to purchase or refinance a home and the cost of improvements. Borrowers need to qualify for the loan to buy or refinance the home, and FHA insures the loan to protect the lender against loss in the event of a payment default.
Getting an energy-efficient mortgage
To get an energy-efficient mortgage, you will need a home energy rating system rater (HERS) to conduct an energy assessment or rating. This is an individual who is certified to evaluate a home and complete a Home Energy Rating assessment to determine if the home is already energy-efficient or after improvements are completed. Then, they will provide the lender with the Energy Savings Value—the estimated monthly energy savings and the value of the energy efficiency measures.