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Energy Rated Homes of Louisiana
Louisiana Department of Natural Resources
How EEMs Work
Home mortgage underwriting guidelines are based on average costs. This works well for fixed costs such as taxes and insurance, but not for highly variable costs such as utilities. Two homes of the same size and location can have vastly different energy costs.
Energy Efficient Mortgages (EEMs) offer flexible underwriting guidelines based on the premise that persons who pay less for utilities should be able to pay more for a mortgage.
There are two types of Energy Efficient Mortgages.
- Homes Already Energy Efficient
For homes already energy efficient, lenders can use an EEM to qualify potential buyers using more lenient underwriting guidelines. This is allowed because an efficient home will have lower energy bills, leaving the owner with more income available for mortgage payments.
- Homes Needing Energy Improvements
The second type of EEM applies to home buyers who wish to upgrade the energy efficiency of their home at time of purchase. In this case,, the cost of the upgrades can be included in the mortgage, with the resultant reduced energy costs offsetting the cost of extra financing.
Examples of EEMs in Action
Example One: Homes Already Energy Efficient
Assume:
Monthly income of $2,500
Mortgage rate of 7.5%
30 year term
Standard Home:
Maximum monthly payment at 28% debt-to-income ratio: $700
Maximum mortgage (90% of appraised value): $90,100
Maximum house price (mortgage plus 10% down): $107,262
Energy Efficient House:
Maximum monthly payment at 30% debt-to-income ratio: $750
Maximum mortgage (90% of appraised value): $96,535
Maximum house price (mortgage plus 10% down): $107,262
Added buying power with EEM: $7,151
Example Two: Homes Needing Energy Improvements
Assume:
$75,000 FHA Mortgage at 7.5% interest over 30 years
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With $4,000 in Energy Improvements |
Without Energy Improvements |
| Monthly Mortgage Payment |
$552.38 |
$524.42 |
| Monthly Energy Expenses |
$90.00 |
$150.00 |
| Total Monthly Cost: |
$642.38 |
$674.42 |
The bottom line: The home buyer iin this example saves $32 a month nearly $400 per year by using an EEM to make energy-efficiency improvements at time of purchase.
5 Good Reasons for an EEM
- To save money.
- To increase the value and marketability of your home.
- To help qualify for a mortgage loan.
- To conserve natural resources and protect the environment.
- To make your home more comfortable and healthier.
It All Starts With An Energy Rating
An energy rating is a standard measure of a home's efficiency, much like a mileage rating for a car. It lets you compare the efficiency of one house to another, estimates your future energy bills, and recommends improvements that will save you money.
The rating is the result of a comprehensive energy inspection by a private sector energy rater trained and certified by the state and approved by the secondary mortgage market.
For more information about Energy Efficient Mortgages and for a list of certified Home Energy Raters, call, e-mail or write:
Louisiana Department of Natural Resources
Technology Assessment Division
Energy Rated Homes of Louisiana is a member of Energy Rated Homes of AmericaTM (ERHA), a 501 (C) (3) non-profit, membership organization. ERHA was incorporated in Arkansas in 1987 to provide national administration of the Uniform Energy Rating SystemTM--the rating system adopted by Energy Rated Homes of Louisiana.
The Energy Rated Homes of Louisiana Program is funded 100% percent ($248,500) from oil overcharge funds from the Exxon settlement as provided by the Louisiana Department of Natural Resources and approved by the U.S. Department of Energy.
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