Energy Efficent Mortgages (EEM) are offered to make home ownership affordable and easier to qualify for a larger loan amount.
“Energy Efficient Mortgages,” also known as EEMs, make it easier for borrowers to qualify for loans to purchase homes with specific energy-efficiency improvements.
EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.
To get an EEM a borrower typically has to have a home energy rater conduct a home energy rating before financing is approved. This rating verifies for the lender that the home is energy-efficient.
EEMs are normally used to purchase a new home. EEMs are sometimes confused with Energy Improvement Mortgages (EIMs), which are used for existing homes and allow borrowers to include the cost of energy-efficiency improvements in the mortgage without increasing the down payment.
EEMs (and EIMs) are sponsored by federally insured mortgage programs (FHA and VA) and the conventional secondary mortgage market (Fannie Mae and Freddie Mac). Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs.
FHA EEM will allow higher housing and debt ratios of 33% and 45%. The EEM program recognizes that the improved energy efficiency of a house can increase its affordability by reducing the operating costs. Cost-effective energy improvements result in lower utility bills, conserve energy and, thus, make more income available for the mortgage payment.