Energy Efficient Mortgages & Home Energy Rating System (HERS)
An Energy Efficient Mortgage (EEM) is a mortgage that credits a home’s energy efficiency in the mortgage itself. 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.
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Frequently Asked Questions:
What is an Energy Efficient Mortgage?
An Energy Efficient Mortgage (EEM) is a FHA/VA loan program that recognizes the energy efficiency of a home. When purchasing or refinancing an existing home, the EEM allows 100% financing of cost effective energy upgrades into the mortgage. The borrower does not have to qualify for this amount and no additional down payment is required. A HERS report is required to show which upgrades qualify as “cost effective”.
Why would a buyer use these programs?
By making energy efficient improvements to an existing home, the buyer benefits immediately.
* Live in a more comfortable and quieter home
* Lower utility bills making home ownership more affordable
* Home will be cooler in summer and warmer in winter
* Home will have increased value based on the improvements
* Upgrades are financed at the low mortgage rate
Who can qualify?
Anyone that qualifies for a FHA or VA loan will automatically qualify for the EEM. The EEM may be used with Sections 203b, 203k & 203k streamline rehabilitation programs, 234c condominium projects, and 203h mortgages for disaster victims for both purchases and refinances, including streamline refinances.
What is the HERS report?
In California the HERS (Home Energy Rating) report will be provided by CHEERS® (California Home Energy Efficiency Rating Services), a non-profit organization who trains and certifies HERS Raters. CHEERS® is a member of the Residential Energy Services Network (RESNET) as a HERS Provider. RESNET accredited HERS rating reports are recognized by FHA/VA and the Mortgage Industry as required documentation for EEM programs. The Building Doctors are certified raters with CHEERS® and can prepare these reports.
How much does a CHEERS® report cost & who pays for it?
The cost of the report will vary. All CHEERS® Raters are independent business professionals and charges are based on the amount of time spent to collect data on site, diagnostic testing that may be done at the time of the rating, inputting the information into the CHEERS® software and analysis. The CHEERS® report may be paid by the buyer, seller, Realtor or lender. The fee can be paid at the time of the Raters visit, paid as a non-recurring closing cost, or financed as part of the “cost effective” improvements in the EEM funds.
Who chooses the improvements included in the EEM?
The buyer always chooses the improvements to be financed. However, the package of improvements selected must be “cost effective”, defined as: When the savings over the useful life of the product are greater than the installed costs.
Will this cause a delay in closing the loan?
Using an EEM should not delay the loan process in any way. However, this process should get started as soon as possible after escrow has been opened.
When are the improvements installed?
The EEM improvements can only be installed after the close of escrow. The EEM funds can be held by the Lender or the Escrow Company in a holdback account. When improvements are completed the contractors are paid from the escrow account. The improvements must be installed within 90 days (FHA) or 120 days (VA) after close. In most cases, the upgrades are completed within 7-14 days.
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