February 9, 2001
Contact: Leona K. Hawks, 435-797-1529
Writer: Dennis Hinkamp 801-797-1392


LOGAN — It is a little known and seldom used financing tool, but Energy Efficient Mortgages (EEMs) can increase your buying power when looking for a home.

An EEM takes into account that the true cost of owning and living in a home includes utility bills. Living in an energy efficient home should free extra money to go toward mortgage payments, says Leona Hawks, Utah State University Extension housing specialist.

Hawks says there are several EEM programs falling into two general categories. The first type allows borrowers buying an existing home or refinancing the home they currently live in to finance additional dollars for energy improvements. The second type uses adjusted loan qualification rules so prospective homeowners can qualify for higher mortgage payments on energy efficient homes. The reasoning being that lower energy bills will offset the higher mortgage payment.

EEMs are available through the Federal Housing Administration (FHA), the Farmers Home Administration (FMHA) and the Department of Veterans Affairs (VA). Secondary mortgage lenders such as the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation have developed similar programs, she says.

Each of the agencies that offers EEMs has specific guidelines to determine the eligibility of the home, which improvements qualify and the debt-to-income ratio required to qualify. For instance, Fannie Mae and Freddy Mac will accept an adjustment to qualifying ratios (debt-to-income and loan-to-value) and allow for an adjustment to the appraised value, Hawks says. It works like this: Under the usual 28 percent debt-to-income ratio a borrower would need a monthly gross income of $2,719 to take on a $761 monthly mortgage (based on a $95,000 home, 30 year mortgage at a 9 percent interest rate). The same borrower buying a high energy efficiency home at the same price would only need a monthly take home gross income of $2,538.

For EEMs that include the price of improvement to an existing home, she says an appraisal of the costs must be submitted to the lender. If they qualify, Fannnie Mae and Freddie Mac will finance additional mortgage money up to 50 percent of the improvements. The cost of energy improvements for an existing home can be 15 percent of the home’s value, and up to 100 percent of the energy improvements can be financed.

Since rating a home for energy efficiency is still somewhat subjective, the trick to getting one of these loans is documenting the efficiency and convincing your lending institution. Fortunately, Hawks says Utah is one of 10 states that has building codes that already meet or exceed American Building Official Model Energy Code or National Association of Homebuilders Thermal Performance Guidelines. This will help consumers get EEMs for new homes. There are energy rating services in Utah. The Energy Rated Homes of Utah is one such service that provides assurance that homes meet energy efficiency standards. For more information about Energy Rated Homes of Utah, you can call 801-765-0034.

For now, Hawks says potential home buyers may have to do a lot of the research and work to educate lenders and real estate agents about the advantages of EEMs.