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While home energy efficiency improvements can generate major savings for homeowners, financing the up-front capital costs of such improvements often presents a barrier to efficiency projects.
An energy-efficient mortgage (EEM) incorporates the savings from planned energy efficiency measures in a home in calculating a borrower’s mortgage eligibility; this would provide the borrower with the funds necessary to undertake energy efficiency upgrades when buying or refinancing a home.
Based on the assumption that lower utility costs would enable a borrower to make a larger mortgage payment, an EEM would allow a borrower a larger mortgage in order to finance efficiency upgrades. While not widely available at present, EEMs could provide the opportunity for particularly motivated home buyers, or those wishing to refinance, with the financing necessary to cover the capital costs of major home efficiency renovations.
A few relatively small-scale EEM programs and pilot programs exist today, in addition to programs individual lenders may have developed. Under the Federal Housing Administration’s (FHA) existing EEM program, the Department of Housing and Urban Development (HUD) guarantees any EEM funded by a mortgage lender (e.g., a bank or other lending entity); this program requires inspections by a certified Home Energy Rating System analyst to determine projected energy savings. Provisions in the American Clean Energy and Security Act, recently passed by the House of Representatives, would greatly expand the availability of HUD-backed EEMs; Senate action is pending, though the Senate bill currently under consideration does not include similar provisions. An ENERGY STAR mortgage pilot program is presently underway, and accounts for energy savings in ENERGY STAR-labeled homes in mortgage calculations.
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