THE BLANKET LOAN: An Energy Efficient Mortgage
covers home upgrades that cut heating bills

LANSING - If winter heating bills are squeezing your budget, a financing option that's little known in Michigan may bring relief -- an energy efficient mortgage.

A couple who financed their first home recently using an energy efficient mortgage got the means to make energy improvements - primarily a new furnace - by rolling the cost into the mortgage.

The home Felipe Lopez and Imelda Ramirez bought in Delta Township, near Lansing, is worth more immediately because the improvements increase the appraised value. The higher mortgage payment is offset by lower utility bills. The couple expects to save $740 a year, or $60 per month, according to the energy audit performed on the three-bedroom house. Their first heating bill, for 39 days of service in November and December, was just $80.

Ramirez, an attorney, said she and her husband compared the energy efficient mortgage to a conventional loan.

The home's furnace was within five years of the end of its life, she said. By replacing it now and rolling the cost into the mortgage, the couple figured they could avoid a large expense in the near future and free up money for other improvements.

"We decided to go with the energy efficient mortgage because we thought it would save us more money in the long run," Ramirez said. "It may have taken us a little time to understand it all, but we're really happy with it, and I love my mortgage payment."

Who it helps

Created by mortgage giant Fannie Mae in 1979, energy efficient mortgages have been used mostly in the West. Even there they constitute only a small portion of the total mortgage market, said Michelle Desiderio, senior product developer for Fannie Mae. The Ramirez-Lopez energy efficient mortgage was the first Fannie Mae has done in Michigan, she said.

A key attraction of the mortgages is that because they lower monthly costs, buyers can qualify for larger loans, enabling them to afford bigger houses In addition, Fannie Mae offers a nearly 100 percent loan-to-value mortgage with only a $500 down payment. That makes the mortgage option even more appealing to the lower- and moderate-income buyers who benefit from the program the most, Desiderio said.

Often, those buyers are priced out of the new home market, she said. But older houses may be more expensive to operate because they leak more heat, are not as well insulated and appliances are older and less efficient.

Homeowners can use an energy efficient mortgage to borrow up to 15 percent of the home's value and then spend it on improvements. Over time, energy bills can shrink enough to more than offset the higher mortgage.

Joel Wiese, a mortgage broker at Indigo Financial in Lansing, says homeowners can save one-third to half of utility costs using the special mortgages. He estimates 90 percent of homes would benefit from this financing, especially now that home heating and other energy costs are rising.

Increased demand expected

Desiderio said technical problems are the main reason the mortgages haven't been more popular.

Until about two years ago, lenders had to underwrite the loans. But in 2002, Fannie Mae revamped the program to make it compatible with the Desktop Underwriter software most lenders use.

"It made it much easier on the lenders," Desiderio said. Wiese said just this month his company decided that gradually it will make energy efficient mortgage underwriting available at all 54 of its Michigan branches. Still, he said, only three conventional lenders service EEMs: Countrywide Wachovia and National City. Countrywide was the lender for Ramirez and Lopez.

The Federal Housing Administration offers an energy efficient mortgage product that has been used in Michigan.

Desiderio said consumer awareness about energy efficiency and rising environmental consciousness are expected to drive demand and make the mortgages available widely.

Ypsilanti resident Amy Grettum says she looked for such a loan several years ago, after she learned about them at a housing conference. But she couldn't find a knowledgeable lender.

She works for the Detroit nonprofit group Warm Training and is a licensed builder who owns two Ypsilanti homes. After she paid for initial renovations to the first home, she refinanced it. In order to buy the second one, she took out a loan on the equity in the first. An energy efficient mortgage would have allowed her to add the cost of improvements to the second mortgage and keep the equity in the first house.

"Now I've put myself in a position where I've got equity pulled out of two properties, rather than just one," Grettum said.

Spreading green awareness

Ramirez and her husband weren't looking for financing with a green conscience, but the experience has made them more aware of the environment. They got a new stove and refrigerator when they moved into the house and they looked for efficient models. They buy long-lasting lightbulbs now, too, Ramirez said, something they wouldn't have paid attention to before.

"It's made us more conscious. We look at everything like that -- what's going to save us the most money." Ramirez said.

Whether you're interested in helping the environment or not, Desiderio says the financial advantages of energy efficient mortgages can't be overlooked.

"This isn't President Jimmy Carter telling everybody to lower the thermostat and put a sweater on," she said. "Why not be in a home that's cheaper to operate and live in more comfortably?"

Desiderio added that the higher appraised value of homes financed with EEMs always has been realized at resale.

"Everything we've seen has demonstrated that you've seen that value," she said.