Green Mortgages

"Going green" means doing your part to help protect our fragile planet. If you're a homeowners, an environmentally friendly residence can also protect your wallet. An energy-efficient home is enough of a beneficial investment that some lenders now offer energy-efficient or "green" mortgages.

An energy-efficient mortgage (EEM) is generally part of a primary mortgage so you make only one monthly payment, and it can help you purchase a home you plan to make greener. "In the right situation, an EEM can help people live in a more efficient house without spending any more of their own money," says Dakota Gale, branch manager of Green Mortgage Northwest in Portland, Oregon. People wind up saving money, but the added comfort can be the biggest benefit." In addition, you can expect to see your heating and cooling bills go way down.

Green mortgages from the FHA

An energy-efficient mortgage from by the Federal Housing Administration can help with upgrades to your current dwelling or a house you're planning to build or buy. You'd only need an approval for the mortgage amount needed to refinance or purchase the house, not for energy improvement expenses.

Let's say you're purchasing a $300,000 house and expect to put $15,000 toward energy improvements: you'll only have to get approved for the $300,000 loan. What you put down for the house won't change, either. The mortgage is backed by the government -- something that helps lenders offer competitive interest rates and lower down payment requirements.

If you qualify for an FHA loan, that also qualifies you for an energy-efficient loan from the agency. Before the lender approves your loan, though, a certified energy specialist must inspect the house and vouch that any energy improvements will save you money over the long run.

Small hurdles include proving to the lender that you have consistent income, a credit score higher than 580 and that you are a U.S. citizen. If you have a credit score that is slightly lower than 580 but higher than 500, you could still be eligible, but you'll probably have to put 10 percent down rather than the minimum 3.5 percent.

The FHA caps the amount of energy improvement costs in its loans. The limit for energy-efficient improvements is 5 percent of the value of the property, 115 percent of the median price of a single-family house in the area, or 150 percent of Freddie Mac's conforming loan limit, whichever is lowest.

An energy-improvement mortgage can also help you finance green improvements to your existing home, perhaps replacing your windows, insulation or A/C unit.

you're already a mortgage borrower, your lender can increase your loan amount to factor in your energy upgrades. Your monthly payment will increase, but you'll likely save money on your energy bills.

The FHA "green" mortgage is a good one, but it's not the only game in town. Banks as well as the Department of Veterans Affairs also offer energy-efficient mortgages.

Conventional EEMs

You can also get an EEM through a bank, but you may have to shop around. "Most people don't know about EEMs, and a lot of lenders don't know how to do them," Gale says. "The borrower has to ask for it, and the lender has to have enough data points to know that it makes sense."

Lenders treat new energy-efficient mortgages like other home loans. They'll look at your credit history, income and ability to pay without considering the money you'll save on energy costs. If you're buying an existing home and want to make energy improvements, the home must be evaluated.

Alternative ways to green your home

There are other ways to go green. Local governments often offer rebates for energy-efficient purchases. For example, the Los Angeles Department of Water and Power offers rebates of up to $1,000 for homeowners who upgrade old pumps for in-ground pools.

Con Edison, the energy company covering most of New York City, offers cash rebates for customers who upgrade their heating and cooling systems, including up to $1,000 for a new water boiler.

Gale notes that many cities and states have set up programs to encourage people to make their homes more energy efficient. Clean Energy Works Oregon, for example, will loan out up to $20,000 for energy improvements. "That will pay for a huge chunk of what you'd want to do, whether it's insulation or a new HVAC system," he says.

Whether or not you get a green mortgage, energy efficiency is a worthy investment. You'll enjoy comfort, savings and the feeling that you're doing something for the environment. Any way you look at it, that's a positive return on your money.

References

Energy-efficient mortgages. https://www.energystar.gov/newhomes/mortgage_lending_programs/energy_efficient_mortgages

FHA's energy-efficient mortgage. https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/eem/eemhog96

FHA's energy-efficient mortgage. https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/eem/eemhog96

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