Energy-Efficient Mortgages

Energy-efficient home mortgage programs allow larger mortgages for homes meeting certain energy-efficiency standards.

Several government-sponsored home mortgage programs, including those of the Veterans Administration (VA), the Federal Housing Administration (FHA), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) maintain energy-efficient mortgage programs.

The purpose of these programs is to promote the construction of new energy-efficient homes and to allow the buyers and owners of existing homes to roll the cost of needed energy improvements into their mortgages.

For new homes, buyers can qualify for a larger mortgage if the home meets certain energy-efficient criteria.

For existing homes needing energy improvements, the cost of eligible improvements can be included in the mortgage.

The logic is that highly efficient structures will use less energy, and that this will result in lower utility bills, resulting in greater income available to pay the mortgage. The combined mortgage and utility payments may be about the same as for a less energy-efficient home, but with the energy-efficient home a greater portion of the total goes toward the home itself.

Items normally considered when evaluating the energy efficiency of a home to include: adequate insulation in the building envelope, around water heaters, and surrounding ducts and pipes in unconditioned spaces; caulking and weather-stripping; double- or triple-pane windows; window shading or landscaping for sun control; storm windows and doors; automatic setback thermostats; energy-efficient heating, cooling, lighting systems, and appliances; solar energy systems for water heating, space heating, and cooling; and building designs that minimize energy use, such as earth sheltering and passive solar features.

To date, the energy efficient mortgage program has been under-utilized. This is because of lack of promotion and information, and therefore lack of demand. As potential home buyers, real estate professionals and lenders learn of this option, the demand for this type of mortgage has increased. Expect this concept to become more common practice in the near future. Advocacy groups are continuing to push this concept, and its acceptance is becoming more widespread. Check with local institutions to determine if energy efficient mortgage programs are available in your area.