Green Mortgages: Three Types

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Have you ever heard of a “Green Mortgage”?

If not, you may soon.

They seem to be gaining steam along with the rest of the “green” movements. In order for a mortgage program to be considered a “green mortgage” program, it simply has to have an incentive that can be added to a regular mortgage program that will encourage people to enhance the home’s energy efficiency through cost-effective, energy-saving measures.

In order to fund a green mortgage, during the application process, a home energy rater will conduct a home energy audit and give the home an energy rating before funding is approved. The home energy rating will be used to verify that the home is considered “energy-efficient”.

There are many different types of improvements that can be made to a house that are designed to improve the efficiency rating including heating and cooling systems, solar systems, weatherproofing and others. And in addition to the various types of improvements that can be made, there are also three main types of Green Mortgages:

  • Conventional Energy Efficient Mortgages
  • VA Energy Efficient Mortgages
  • FHA Energy Efficient Mortgages

Conventional Energy Efficient Mortgages

Conventional Energy Efficient Mortgages are available through the same lenders who offer conventional mortgages and they allow the lender to increase the applicants income by a dollar amount that is estimated will be saved on the annual energy bill by doing the improvements.  Save $1,000 a year by improving your home? Add $1,000 to your income when qualifying for the green conventional mortgage.

VA Energy Efficient Mortgages

The department of Veterans Affairs offers a number of different incentives when you purchase or refinance a home but it caps overall energy improvements at $3,000–$6,000.

FHA Energy Efficient Mortgages

The FHA green mortgage is explained in detail in Mortgagee Letter 2005-21 and allows a borrower to finance 100% of the costs related to improvements that make a home more energy efficient.  FHA’s program can be used with standard FHA loans (purchase and refinance), rehabilitation (203(k)) loans, condo financing and FHA mortgages in disaster areas.

So depending on what type of Green Mortgage that you are interested, there are a number of options are available within program guidelines.  Which one is the right one for you? I think it might be obvious: go with the one that saves me the most… green.

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