Make Your House a Green Home

A little-known home mortgage program can help homebuyers save money and energy without adding to their financial burden

  • Hannah Schardt
  • Oct 01, 2006
IMELDA RAMIREZ and Felipe Lopez never thought of themselves as environmentalists. But two years ago, when the Lansing, Michigan, couple bought their first home, they found themselves doing one of the best things anyone can do for the environment: converting their split-level house into a model of energy efficiency.

During their house hunt, the couple stumbled upon a little-known financing option called the Energy Efficient Mortgage (EEM). Created in 1979 by mortgage giant Fannie Mae and backed by the U.S. Department of Housing and Urban Development, the program lets homebuyers add up to 15 percent of their home’s value to their mortgage and use that money to improve their home’s efficiency. There are two types of EEMs: a renovation mortgage, like Ramirez and Lopez’s, which funds improvements to an existing house, and a new construction mortgage, which pays for energy upgrades while a house is being built.

To ensure that homebuyers don’t end up spending above their means, any efficiency improvements must save at least as much on the monthly energy bill as the buyer spends on the additional mortgage. For example, if the renovations add $30 to the monthly mortgage, they must save the homeowner at least $30 on monthly utility bills. And to further guarantee that the buyer comes out ahead, the value of the improvements is added on to the home’s appraised value, rather than subtracted from the equity. That means the homeowner gets a more efficient house—for free. For Ramirez and Lopez, the savings were pronounced. Even during the dead of winter, the couple only once spent more than $100 on heating their home—and that bill was $105. More often, the bills topped out at $80. The average heating bill in Michigan last winter was $169. “We have been very, very happy with the renovations,” says Ramirez.

As in all sales involving EEMs, the couple didn’t move into the house until the repairs were completed. First, an energy inspector toured the house to determine its score on the Home Energy Ratings System (HERS), a scale that weighs the energy efficiency of houses. Based on that inspection, Ramirez and Lopez were able to figure out where most of the house’s wasted energy was being lost and to concentrate on the most glaring energy offenders: an old furnace, an outdated and poorly placed thermostat and some drafty rooms. With the additional funding, they replaced the furnace with one that switches between gas and electricity according to which is less expensive, installed a programmable thermostat and caulked the leaks in the garage and basement. The whole project took “maybe a week,” says Ramirez.

Yet despite such success stories, EEMs remain a niche product. “Most Americans are not taught to think about what’s inside the walls of a house,” says Joel Wiese, a mortgage lender in Lansing whose first EEM clients were Ramirez and Lopez. “I hate to say it, but when it comes to buying a house, people are pretty superficial.” Trying to correct that—and to carve out a place for himself in the industry—Wiese has become something of an evangelist for energy efficient home buying. So much so, in fact, that he and his partner have decided to only offer new home mortgages for houses that are built to the standards of the Environmental Protection Agency’s (EPA) Energy Star program. “We do every other kind of mortgage, but we’re so passionate about Energy Efficient Mortgages,” he says. “And there’s no one who can’t afford them. If you qualify for a conventional mortgage, you qualify for an EEM.”

Still, says Wiese, EEMs can be a hard sell. Many lenders aren’t willing to invest the additional time in learning about the program or in processing an unfamiliar type of loan. “All most lenders will tell you is how much you can afford,” he says.

Sam Rashkin, the national director of the EPA’s Energy Star Homes program, tends to agree. “We’ll see an increase in the number of Energy Efficient Mortgages when lenders see a benefit,” says Rashkin, whose organization encourages consumers to make energy efficient choices in buying and furnishing their homes. “For now, lenders are looking for the least amount of forms to fill out, so any additional paperwork would be considered a burden.” According to Rashkin, lenders have no motivation to promote EEMs to a client unless there is absolutely no other way to get the client into a house.

A recent reorganization at Fannie Mae, brought on by a $10.6 billion accounting scandal, isn’t helping: With internal difficulties occupying much of the company’s attention, the already below-the-radar EEM program is going largely neglected. “Fannie Mae created the guidelines but neglected to tell people how to sell the program,” says Wiese.

Still, Rashkin is hopeful. “Lately, there’s been a resurgence in interest,” he says. Rising gas prices and an increasingly unstable global energy situation have steered some homebuyers to closely examine their own energy use. Besides, says Rashkin, everyone likes to save money. It’s just a matter of getting the word out. “If people knew that this would add, let’s say, $10 to the mortgage each month but would save them $40 to 45 a month on utilities,” he says, “I think many more people would take advantage of this.”

Hannah Schardt is a senior associate editor for this magazine. For more information, visit and search for “mortgages.”

Building Trend: Green Houses

The number of homes built to “green” building standards increased from 2,500 in 2000 to 14,600 in 2004, according to the National Association of Home Builders.

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