Create a new niche with Energy Efficient Mortgages

Specialize in older homes by learning the many
benefits of these loans for your homebuyers.

The Energy Efficient Mortgage (EEM) offers a number of key benefits to homebuyers - most notably, the ability to qualify for a larger mortgage and reduce energy bills year-round. So if you aren't already familiar with this type of loan, do yourself a favor and learn how your clients can use it to their advantage.

There also are perks for you. Once you know how the EEM works, you can corner the market on older housing in your area and provide an innovative solution to clients who didn't think they could afford a home that needs pricey energy-related improvements.

In 1979, Fannie Mae created the EEM with the goal of it becoming as conventional as a 30-year fixed mortgage. However, last year only 27,000 of these mortgages were underwritten - a problem the organization is working to overcome with new product benefits and better training for lenders.

Appealing option for buyers

The program has tremendous appeal for borrowers because they can borrow more than they could with other conventional loans, make improvements that increase the value of their homes, and enjoy the energy savings.

Just as loans require an appraisal, the EEM begins with an energy inspection to evaluate whether a home needs additional insulation, new windows, a new furnace, or other updated appliances.

When the costs of the recommended energy-based improvements are totaled, they're rolled into the mortgage loan, allowing the borrower to finance the improvements without having to qualify for a bigger mortgage. Future savings in energy costs more than offset the additional borrowing costs that are rolled into the loan.

"My first client saved about $740 his first year in energy costs, but only paid $30 more a month for his energy-efficient mortgage," says mortgage loan officer Joel Wiese, of Priority Mortgage Corp in Lansing, Michigan.

Under Fannie Mae's guidelines for the EEM, the full costs of energy improvements are added to the home appraisal, which means the buyer will have 100 percent of the investments reflected in the appraised value.

Revitalize interest in older homes

The mortgage can help remove the age stigma from older homes, which constitutes the largest housing inventory in the country. Buyers are often reluctant to take on the chore of improving older homes because they fear the full cost of improvements won't be realized when they sell.

But if they can make energy-efficient replacements under a loan that guarantees that all of the costs will be added to the appraisal, what's not to like?

"A home's energy costs add so much to the cost of operations, and that is what the banks are looking at now," Wiese says. "You may afford the mortgage, but can you afford the heating bill on this house?"

Any Fannie Mae mortgage can add an EEM feature, according to Michelle Desiderio, senior product developer for Fannie Mae. "As long as the lender is a Fannie Mae lender partner, we can add the Energy Efficient Mortgage to a suite of products," Desiderio says.

And there's no limit on the borrower's income.

Fannie Mae is promoting the product to builders and lenders, and is offering training to those who want to offer it. "A lot of (loan) officers have a lot of products to sell, but once they do one, they can see it is easy and what the benefits are to borrowers."

Differentiate Yourself

Real estate practitioners play a critical role in raising the visibility of the EEM, Desiderio says. "Homebuyers want a perfect house," she says. "This is a tool that can enable them to direct a portion of their income toward housing instead of utility bills."

Wiese says now that he knows how the program works, he can use his knowledge to differentiate himself from competitors. Real estate practitioners can do the same.

"You have to have a niche," Wiese says. "If you can find a lender who is willing to do the little bit of extra learning and work it takes to do these loans, you will have a new niche."