* This type of loan is not available by our team and the information below is solely for information and educational purposes
Green mortgages, also known as energy efficient mortgages, were first introduced in 1980 and designed to make your home more environmentally friendly and save the borrower money at the same time. It is possible to get green mortgages from government backed programs like the FHA or VA as well as Fannie and Freddie Mac.
Unlike other loans that can be used to renovate your home, green mortgages are not second mortgages. Green mortgages will be rolled into your existing mortgage, so that borrowers only need to make one payment per month.
The general idea behind these loans is that energy efficient homes ultimately cost less in the long-run. By renovating your home to be more environmentally friendly, you will save money in utility costs. Proponents of green mortgages say that these savings come from a cooler home in the summer, and warmer home in the winter without having to use the same amount of utilities.
If a borrower is looking to refinance their current property and make some environmentally friendly renovations, they would also get a green mortgage. This gets added in to their current mortgage payment, as well. Purchasing a home that has already been improved to be energy efficient, borrowers can get special considerations from lenders. It is possible to qualify for a higher mortgage amount because lenders recognize that a borrower’s monthly utility payments will be lower.
One of the main benefits of green mortgages, other than benefiting the environment and your pockets, is the increased purchasing power that they give borrowers. This benefit comes from the fact that lenders will allow borrowers to use more of their income for the actual mortgage payment because they know their utility payments will be lower. Borrower’s can therefore actually afford the high monthly mortgage payment. For example, the FHA will allow people to qualify for a mortgage that is 33% of their debt-to-income(DTI) ratio while they only allow people to qualify for a 29% that are purchasing a non-environmentally friendly home.
If you qualify for a VA, FHA, or conventional loan, you can generally qualify for a green mortgage as well. There are different requirements for each program, but as a general rule if you qualify for an FHA loan, you will qualify for an FHA green mortgage. There are a couple considerations that people who want to get a green mortgage need to factor in before going to a lender. First, the borrower needs to consider the fact that the improvements need to be cost effective. The amount of money you will save needs to exceed the amount of the improvements. Secondly, you need to do an analysis of what improvements you want to make with their green mortgage. This can be done with a Home Energy Ratings System, also known as a HERS report. This report assesses how energy efficient your home is. A HERS report will also give you suggestions of upgrades you could make to your home, an estimate of the price of renovations, an estimate of the energy rating after renovations, and estimates of your before and after annual cost of energy.