Energy Efficient Mortgages in Arizona

What is a GREEN mortgage?

 It is also called an ENERGY EFFICIENT MORTGAGE (EEM)

THE ENERGY EFFICIENT MORTGAGE means savings and comfort. When you are selling, buying, refinancing, or remodeling your home, you can increase your comfort and save money by using the Energy Efficient Mortgage (EEM). It is easy to use, federally recognized, and can be applied to most home mortgages.

EEM’s provide the borrower with special benefits when purchasing a home that is energy efficient, or can be made efficient through the installation of energy-saving improvements.

It also provides the seller benefits by attracting more attention in an already competitive market to help your home sell quicker and makes your home more affordable.

Home owners with lower utility bills have more money in their pocket each month. They can afford to allocate a larger portion of their income to housing expenses. If you have more cash, why not buy a better, more comfortable home?

Scroll down or pick one of the highlighted options:

• The options with Energy Efficient Mortgages In Phoenix, Arizona
• How the Buyer, Seller and Remodelers benefit from an Energy Efficient Mortgage in Phoenix, AZ
• This is how the EEM Works in Phoenix, AZ
• Which Buyers and homes are eligible for the EEM in Phoenix, AZ
• What the EEM does for the buyer's borrowing power
• What is HERS (Home Energy Rating System) and recommended improvements?
• EEM Process for Existing Homes in Phoenix, AZ
• Adding Energy Home Improvements through a Home Refinance in Phoenix, AZ
• Case Studies and examples of how the program works in Phoenix, AZ

It is advantageous to have the HERS Rating done as early in the Energy Efficient Mortgage loan process as possible. This way, the Rating can be performed while other aspects of the loan are being processed. Closing the loan should not be delayed. You may get a larger tax deduction with the EEM because the interest on mortgage payments is tax deductible. This can save you more money than paying for energy upgrades with a credit card, bank loan, or cash, none of which are usually tax deductible.

Each house is as unique as its owner. Benefits derived from the EEM will vary from one house to another, the benefits in the examples in the may not apply in all cases.

Sun Nations Mortgage will be your best source of information on your own EEM benefits.

THE OPTIONS OF AN ENERGY EFFICIENT MORTGAGE IN ARIZONA

After you have reviewed if you are eligible , the process involved and benefits, let's look at your loan options:

NEW CONSTRUCTION

NEW PURCHASE of an existing home and making ENERGY EFFICIENT IMPROVEMENTS

REFINANCE current home 

 ENERGY EFFICIENT IMPROVEMENTS NEW CONSTRUCTION

NEW PURCHASE of an existing home and making ENERGY EFFICIENT IMPROVEMENTS

Conventional Loan Programs (Fannie Mae and Freddie Mac) permit the use of higher housing expense to income and debt to income ratios (up to 2%) if the home is energy efficient or contains energy efficient items. They also add the cost savings of energy improvements to your income which allows you to qualify for more home.

EXAMPLE: For every $1 saved in monthly utility costs, you can qualify for an additional $60 to $70 in upgrades / loan amount. So if you save $74 a month on your electric bill you can qualify for $4,810 without effecting your qualification. Also, $74 will be added to your monthly income and will allow you to qualify for a larger loan amount. You include the actual energy improvement costs into the purchase price of the property – up to 15% of the purchase price. So if you are buying a $250,000 home you can add up to $37,500 in energy saving improvements.

• Manufacturer appliance rebates can be used towards closing costs.
• Tax credits, where available can be used towards borrower’s income.

If the improvements are not completed prior to close…an escrow account can be established for up to 10% of the value for completion of the upgrades and need to be completed within 120 days of loan closing.

CASE STUDY: You make $5,500 a month & have a car payment of $350 a month and a credit card of $35 a month. You want to know what you qualify for:

Loan Comparisons Standard Home

You qualify for more and have a more energy efficient home!!!

FHA

The maximum cost of improvements that you can add to the mortgage is either

• 5 percent of the property’s value (not to exceed $8,000) or
• $4,000, whichever is greater.

For example, if your property’s value is $75,000, the maximum cost of improvements allowed is $4,000 because this is greater than 5 percent of the property value. If your property’s value is $100,000, the maximum amount of improvements allowed is $5,000 because this is 5 percent of the property’s value, greater than $4,000 but less than $8,000.

Finally, if your property’s value is $250,000, the maximum cost of improvements allowed is $8,000, which is 5 percent of the property value and the maximum allowed overall.

If the improvements are not completed prior to close…an escrow account can be established for completion of the upgrades and need to be completed within 90 days of loan closing.

VA ENERGY EFFICIENT MORTGAGE

On a VA Energy Efficient Mortgage the maximum loan amount is the lower of the appraised value or purchase price minus the down payment if any.

You then add in the cost of the Energy Improvements based on the HERS report plus the funding fee.

Your base mortgage amount may be increased by:

*less than or equal to $3,000 with the copy of the bids / contract itemizing the improvements and their costs.

**greater than $3,000 to $6,000 – same documentation as above with determination that monthly mortgage payment increase does not exceed the reduction in monthly utility costs. Documented determination made by municipalities, utility companies, state agencies or other reliable sources.

***Greater than $6,000 – Discretion must be exercised. Including the above requirements consider whether veteran’s income will cover the higher monthly payment. Subject to value determination by VA.

The Funding Fee will be calculated based on the costs of the Energy Efficient Improvements and the full loan amount. Entitlement and Guaranty: Entitlement used will be based on the loan amount before adding the cost of Energy Efficient Improvements. The 25% required guarantee will be based on the total loan amount including improvements.

If the improvements are not completed prior to closing….an escrow account may be set up and the loan closed.

The following will apply:

• *Only the amount needed to complete the improvements may be withheld.
• *Check the appropriate block on VA Form-26-1820. Item 23. Report and Certification of Loan Disbursement
• *Improvements should be completed within (6) six months form loan closing

REFINANCE OF CURRENT HOME making ENERGY EFFICIENT IMPROVEMENTS

Conventional Loan Programs (Fannie Mae and Freddie Mac) permit the use of higher housing expense to income and debt to income ratios (up to 2%) if the home is energy efficient or contains energy efficient items. They also add the cost savings of energy improvements to your income which allows you to qualify for more home. You include the actual energy improvement costs into the purchase price of the property – up to 15% of the purchase price.

So if your house is worth $250,000 you can add up to $37,500 in energy saving improvements into your refinance.

FHA The maximum cost of improvements that you can add to the mortgage is either 5 percent of the property’s value (not to exceed $8,000) or $4,000, whichever is greater.

For example, if your property’s value is $75,000, the maximum cost of improvements allowed is $4,000 because this is greater than 5 percent of the property value. If your property’s value is $100,000, the maximum amount of improvements allowed is $5,000 because this is 5 percent of the property’s value, greater than $4,000 but less than $8,000. Finally, if your property’s value is $250,000, the maximum cost of improvements allowed is $8,000, which is 5 percent of the property value and the maximum allowed overall.

If the improvements are not completed prior to close…an escrow account can be established for completion of the upgrades and need to be completed within 90 days of loan closing.

VA Streamlines or Interest Rate Reduction Refinances for EEM's If the cost of the improvements causes a greater than or equal to increase of 20% between the old and new monthly mortgage payments then you must certify that the veteran can qualify for the higher payment by income verification. The exception to the rule of no cash back at closing applies to reimbursing the veteran less than or equal to $6,000 for cost of improvements completed within 90 days of loan completion.

HERS, or Home Energy Rating Systems

A HERS report is similar to a miles-per-gallon (mpg) rating on a car. HERS are programs which provide evaluations of an individual home's energy-efficiency. A HERS report is prepared by a trained certified Energy Rater. Factors such as insulation, appliance efficiencies, window types, local climate, and utility rates are used to rate the home and calculate energy costs.

A HERS Report Includes:

• Overall Rating Index of the house as it is.
• Recommended cost-effective energy upgrades.
• Estimates of the cost, annual savings, and useful life of upgrades.
• Improved Rating Index after the installation of recommended upgrades.
• Estimated annual total energy cost for the existing home before and after upgrades.

A Rating Index is between 1 and 100. A lower index indicates greater efficiency.

Cost-effective upgrades are those which will save more money through energy savings than they cost to install. The HERS rating will look at the following systems and make recommendations based on current applications and where improvements can be made:

Some examples of what could be recommended:

Replacing a cooling / heating system, fixing or replacing a chimney, insulating an attic, crawl space, slab, pipes and / or air ducts, replacing doors and windows, installing solar technologies.

A HERS rating usually costs between $300 and $800. This could be paid for by the buyer, seller, lender, or real estate agent. Sometimes the cost of the rating may be financed as part of the mortgage. No matter how the rating is paid for, it is a very good investment because an EEM could save you or your buyer hundreds of dollars each year.

WHO BENEFITS from the ENERGY EFFICIENT MORTGAGE?

Buyers: Qualify for a larger loan on a better home! Get a more comfortable home NOW. Save money every month from Day One. Increase the potential resale value of your home.

Sellers: Sell your home more quickly. Make your house affordable to more people. Attract attention in a competitive market.

Remodelers/Refinancers: Get all the EEM benefits without moving. Make improvements which will actually save you money. Increase the potential resale value of your home. Pay for energy improvements easily, through your mortgage. Your lender can increase your loan to cover energy improvement costs. Monthly mortgage payments increase slightly, but you actually save money because your energy bills will be lower! Energy Efficient Mortgage Process in Phoenix Borrower selects existing home to purchase or improves current home. Borrower contracts with a Certified Energy Rater to complete a HERS report. Rater prepares an energy efficient report that recommends cost effective measures. They compute the estimated monthly "energy savings". Borrower selects the improvements to install and determines with the lender the final loan amount. Increases home’s appraisal – For new construction:appraised value of property plus present value of efficiency improvements – For retrofits: as-is value plus cost of improvements Borrower can finance up to 100% of the energy improvements. -Improvements get financed over the life of the loan -Fannie Mae will finance up to 15% of value of home and FHA will do up to 5% of value of home Loan Closes with additional funds for energy improvements going into an escrow holdback account. Once installed, contractor paid from escrow. Any remaining funds will be applied as a principal reduction. All buyers who qualify for a home loan qualify for the Energy Efficient Mortgage. The EEM is will give the buyer additional benefits on TOP of their usual mortgage. Sun Nations Mortgage will use the energy efficiency of the house, as determined by a HERS rating, to determine what these benefits will be. Energy Efficient Mortgages can be used on most homes. Availability is not limited by location, home price or utility company.

Sun Nations Mortgage will help you choose which loan type is best for you based upon your loan objectives. Get an EEM on: Older homes qualifying for upgrades in Arizona New or old homes not requiring upgrades in Arizona New construction in Arizona