- The Washington Times - Thursday, November 3, 2005

Cooling temperatures make me think of ways to get the old home place ready for the winter months in the fickle mid-Atlantic area. That usually means spending some money on insulation, caulking and the usual home maintenance that keeps the cold air out and warm air in.

There’s a mortgage on the market that could be worth a look to help either buy an energy-efficient house or make the one you want to purchase more energy efficient.

The Energy Efficient Mortgage (EEM) was designed by the U.S. Department of Housing and Urban Development and can also be used to remodel a house into a more energy-efficient unit, saving on your monthly payments to the power company.

The Residential Energy Services Network (RESN), created by the National Association of State Energy Officials and Energy Rated Homes of America, was established to develop a national market for home energy rating systems and energy efficient mortgages.

RESN notes EEMs benefit borrowers in several ways.

• The estimated energy savings are added to the borrower’s income, allowing him or her to qualify for a higher mortgage amount. With more borrowing power, the EEM then allows borrowers to roll over the costs of energy improvements into the borrowed amount.

• All the costs of the energy improvements — up to 15 percent of the value of the home — can be financed, thus reserving a borrower’s cash for more immediate, move-in costs.

• The value of the home is adjusted by the value of the energy efficient improvements.

• If the house is already energy efficient, then the borrower can use the program to stretch his buying power. Under an EEM, the traditional debt-to-income qualifying ratios are expanded. The idea being that if you’re paying less for monthly energy costs, you can afford more for your mortgage payment.

The Federal Citizen Information Center (FCIC), which is the information/publishing arm of the U.S. General Services Administration (www.pueblo.gsa.gov), has a great online guide about how the program works.

For instance, borrowers with a monthly income of $5,000 could increase their buying power by nearly $16,000 using an EEM, based on a 30-year fixed rate mortgage at 7.5 percent interest rate.

To acquire an EEM, find a target house, then inform your lender that you want an Energy Efficient Mortgage. Then, have a Home Energy Rating Systems review done on the property.

A HERS rating is conducted by a trained energy rater with a cost between $100 to $300 (which can be negotiated between the buyer and seller or financed with the mortgage). The rating ranges from 1 to 100. The higher the score, the more energy efficient the house.

The score rates the following:

• Recommended cost-effective energy upgrades.

• Estimates of the cost, annual savings, and useful life of upgrades.

• Improved Rating Score after the installation of recommended upgrades.

• Estimated annual total energy cost for the existing home before and after upgrades.

The HERS rating is sent to the lender.

The lender evaluates the rating to determine if the home can qualify for energy improvements. If so, the lender puts the extra funds into escrow for the improvements. You close on the house, move in, and then the improvements are completed, paid for out of the escrow.

Perhaps the house already qualifies as an energy-efficient home. The lender can allow your debt-to-income ratios to be stretched, if needed. You close on the house and move in.

There are several versions of the EEM. Some even allow 100 percent loan-to-value financing (i.e., zero down payment financing).

Check with your loan professional for a list of programs that meet the EEM criteria.

M. Anthony Carr has written about real estate since 1989. He is the author of “Real Estate Investing Made Simple.” Post questions or comments at his Web log (https://commonsenserealestate.blogspot.com).

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