Consider a Green Mortgage and Save

Whether you're looking for a new mortgage, or refinancing an old one, think about going green. You can get an Energy Efficient Mortgage (EEM) to help purchase an energy efficient home or bring the older home you're purchasing up to current energy standards. And, unlike a lot of green improvements, this one won't cost you any extra money down and can even start saving you money in your first month.

According to the U.S. Department of Energy, an Energy Efficient Mortgage is a mortgage that credits a home's energy efficiency in the mortgage itself. Borrowers can use the actual or potential energy efficiency of a home to add to their loan without having to increase their down payment.

Types of Loans

Conventional EEM: Increases the customer's income by the dollar amount equal to the estimated energy savings cost of an already energy efficient home. This allows the consumer to purchase a more expensive house than they normally would without putting more money down.

Conventional EIM: This is an Energy Improvement Mortgage, so money is added to the borrower's loan to finance improvements to make homes more energy efficient.

FHA EEM: Allows lenders to add 100% of the cost of energy efficient improvements to a loan without increasing their down payment.

VA EEM: This is for military personnel, reservists and veterans. Like the FHA EEM, it allows lenders to add the cost of efficiency improvements into their mortgage.

Loan Shopping

With all these different kinds of loans, it's important to remember that not all loans are created equal. According to Doris Ikle, president of CMC Energy Services, the best loan to get is the FHA Streamlined (k) loan that can finance up to $35,000 of energy efficiency improvements. "You get a 30-year loan at say 6% and the Streamlined (k) covers most improvements, probably 90%." And with the Streamlined (k) you don't need to go through a rigorous inspections and approval process. To get most EEMs, you need to have a home energy rater conduct a home energy rating (HERS) report that factors in what improvements can be made to your existing home in order to qualify for an EEM. These inspections can run from $100-700 and can be paid by the buyer, seller, realtor or lender. But the Streamlined (k) was designed with the consumer in mind and requires no inspections and light paper work, according to Ikle.

One of the major benefits of the Streamlined (k) loan is that not having an inspector means not having to follow their recommendations for what improvements to make. That means you don't have to pay for things you don't want or need. With the Fannie Mae and Freddie Mac loans, whatever the home energy rater recommends, you have to fix. "Financing is a big part of it," says Ikle. "You can't just do some of the improvements. You have to do all of them. Low income people have a great deal of difficulty."

Savings

The amount of savings varies based on what improvements you make, whether it's installing a new heating system or revamping your windows. Ikle notes a recent pilot program that took place in the Tennessee Valley where after the improvements were made "in general, people saved 25% of their energy bill." So while the extra amount added to your loan will bump up your monthly mortgage payments, this can be offset by the amount you save on your energy bills.

Another thing Ikle points out is that while you get to make the improvements up front with no money down, that doesn't mean you're on the hook for the whole thing. "You will pay that back over 30 years, but if you sell within a year you only pay 1/30th."

Having an energy efficient home can also save you money when the tax man comes knocking. According to the Department of Energy, you can qualify for the Home Energy Efficiency Improvement Tax Credit (up to $500) for installing products like energy efficient windows, doors and roofs or you can qualify for the Residential Renewable Energy Tax Credit (up to 30% of cost) for installing solar or wind energy improvements.

If the savings aren't enough, don't forget that you'll be helping to reduce your effect on global warming. And you can't put a price on saving the world.