It’s easy to get an energy efficient mortgage. Borrowers may finance 100% of the improvements. There is no need to qualify separately for additional financing because the energy savings will most likely offset the increased mortgage payments. This means that yes, the lender calculates how much you will save on your utility bills by upgrading and making improvements, and the underwriter will use that dollar amount to reduce your ratios. This is important if your income to mortgage debt percentage is already at the maximum amount allowed for a PITI payment.

Types of Energy Efficient Improvements That Qualify for an Energy Efficient Mortgage

An energy efficient mortgage should result in substantial savings on monthly utility bills, plus energy efficient improvements may also increase the value of your home, in addition to helping to conserve valuable energy resources. Here are some types of improvements that may qualify for an energy efficient mortgage:

Heating and cooling systemsInsulation in the attic, walls, and floorsEnergy efficient windows such as dual paneDuct system installation and repairsWater heatersEnergy efficient appliances such as washers, dryers, and refrigeratorsWeatherizationNew “cool” roofs

Types of Energy Efficient Mortgages

Three basic types of loans qualify for an energy efficient mortgage. Although the maximum amounts may vary, depending on the type of loan, the determination is based on the improvement reducing energy use, thereby offsetting the cost of the upgrade. Here are types of loans that offer energy efficient mortgages:

Conventional loans purchased by Fannie Mae and Freddie Mac FHA loans VA loans

Many home buyers take out FHA loans because the minimum down payment requirement is only 3.5% of the purchase price. If the cost of the improvements is less than the present value of the energy saved, FHA will let you add the cost of the improvements to your loan. The maximum amount of the mortgage must be the lesser of 5% of:

the value of the property, or 115% of the median area price of a single-family home, or 150% of the conforming Freddie Mac limit

Regardless of FHA guidelines, banks may have overlays that limit the amount. The guidelines permit $2,000 for weatherization in conjunction with a purchase or refinance.

HERS Reports and FHA Energy Efficient Mortgage

Buyers who qualify for an FHA loan automatically qualify for financing an energy efficient mortgage. However, the property must be evaluated for the improvement. For example, if the existing HVAC system is only five years old, the cost of a new system might not offset the savings and therefore will not qualify. An energy rater will prepare a HERS (home energy rating system) report. The cost of this report could vary between $250 and $800. Sometimes the cost of the HERS report can be rolled into the loan. The HERS report will:

Recommend types of upgradesEstimate energy savingsEstimate life of upgrades