Conventional
Most of the national lenders who offer energy-efficient financing operate through one of the following programs.
ENERGY STAR® Mortgage
The ENERGY STAR® Homes program—sponsored jointly by the U.S. Department of Energy and the U.S. Environmental Protection Agency—promotes voluntary partnerships with home builders to construct new homes that are 30 percent more efficient than the guidelines established by the Model Energy Code—a "model" national standard for residential energy efficiency.
The program also encourages lenders to provide EEMs for certified ENERGY STAR® homes. An ENERGYSTAR® mortgage offers a minimum 2 percent stretch on a borrower's debt-to-income ratio, plus at least one additional incentive for borrowers. Incentives may include: - A lower interest rate
- A discount on closing costs and/or origination fees
- Up to a 4 percent extension of the debt-to-income ratio stretch
- Paying for the cost of the home energy rating.
Fannie Mae
Fannie Mae—a private, shareholder-owned corporation—operates under a congressional charter that directs it to channel efforts into increasing the availability and affordability of homeownership. It doesn't lend money directly to home buyers; it purchases mortgages from lenders, ensuring that funds are available.
Energy-Efficient Mortgage - Fannie Mae encourages lenders to offer its EEM by providing incentives and specific criteria for those that it's willing to purchase from lenders. Both existing and new homes fall under this EEM. - Several approved home energy rating methods and programs, not just a HERS, are allowed to evaluate a home's energy efficiency.
- For existing homes, the cost of improvements is limited to 15 percent of its total cost. There is no limit imposed on the cost of improvements for new construction.
- A home buyer can finance 100 percent of the energy efficiency improvements without increasing the down payment.
Residential Energy Efficiency Improvement Loan - Fannie Mae is partnering with utility companies to provide loans to utility customers for the installation of energy-efficient home improvements. The loans feature: - A below-market interest rate
- An unsecured financing option
- Up to $15,000
- A term of up to 10 years
- A "whole-house" or bundled approach to efficiency improvements.
Freddie Mac
Freddie Mac is a stockholder-owned, congressionally chartered corporation that works to create a continuous flow of funds to mortgage lenders in support of homeownership and rental housing. It purchases mortgages from lenders and packages them into securities that are sold to investors, providing homeowners and renters with lower housing costs and better access to home financing.
Energy-Efficient Mortgage - Like Fannie Mae, Freddie Mac provides incentives and criteria, as well as flexible guidelines, for EEMs that it's willing to buy, which encourage lenders to offer them. However, the EEMs are limited to purchasing existing energy-efficient homes or those to be retrofitted or renovated for energy efficiency. - Several home energy rating methods and/or documentation, not just a HERS report, are acceptable.
- Lenders can exceed the standard 2 percent debt-to-income stretch at their own discretion.
- It allows a broader range of energy-efficient improvements than most EEM programs.
When it comes to energy-efficient financing—whether you want to purchase, refinance, or remodel a home—it's best to work with lenders and/or real estate agents who are familiar with home energy ratings and program requirements. If you'd like a home energy rating report, it's also best to work with a certified energy rater. In all instances, it's always a good idea to ask for references and check companies with your local better business bureau.
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