Green Mortgage Lending Qualifications and Financial Savings Explained
If you are considering doing something to reduce home energy costs there are some strong incentives associated with borrowing for a mortgage. While you can save by taking steps in your home to reduce energy costs, you can also save by taking advantage of green mortgage lending. A green mortgage or energy-efficient mortgage (EEM), allows borrowers to qualify for larger loan amounts by incorporating the costs of energy efficient improvements or for the purchase of energy-efficient homes, and for discounts on loans fees and interest rates. In addition there is the tax advantage of deducting these improvement costs through mortgage payments.
Green Mortgage Lending Qualifications
Qualifying for green mortgage lending usually involves a property energy audit. Refinancing or getting a second mortgage are required to reduce current energy usage. The cost of making the property energy efficient is worked into the loan. New homes must conform to energy efficiency standards. The purpose of this green mortgage lending program is to help homeowners save at least 20 percent on energy costs. Existing weatherization and energy efficiency measures are taken into account.
Financial Benefits of Green Mortgage Lending
Home owners realize the savings in energy costs for their utility bills, increase the value of their property, realize the tax deductions, and often create a more comfortable home environment. Large costs of solar panels, new furnaces, insulation, new windows and so on, become more affordable when the costs are spread over fifteen or thirty years. This is not to mention the upfront incentives in fewer fees and lower interest rates at the time of closing. With a little math you might find the savings in energy costs and tax advantages of green mortgage lending could well offset the cost of refinancing and upgrades.
The Federal Housing Administration (FHA) offers plans through approved lenders to include the price of specific energy improvements in the loan. They also do not include the additional amount for the upgrades to the loan amount for borrower qualification purposes. Certain lenders also offer incentives on closing costs for energy-efficient improvements or to purchase a new home that meets Energy Star standards. There are also discounts available in Energy Star appliances bought with the funds from a home equity loan. Lenders must offer a mortgage discount or pay a portion of closing costs to qualify to offer mortgages advertised as Energy Star Mortgages.
Depending on the size of your mortgage, the energy upgrades and the discounts you could realize big savings. In addition, many contractors offer discounts for labor required when purchased through EEMs. This includes upgrades to older existing homes and special discounts offered by new homebuilders. You will need to configure these discounts along with all the other cost savings to fully evaluate the benefit of these mortgage programs. However, green mortgage lending is not automatic savings in every situation. You will still need to comparison shop interest rates, fees, costs, amortization, and energy savings to estimate any potential savings. Most of the time green mortgage lending is only going to pay off when you plan on living in your home for a long stretch of time, and that is often many years.