How To Use Energy Efficient

Mortgages (EEMs) to Increase

Your Business and How They

Work

David Byrnes, LEED AP

Home Performance Specialist

dbyrnes@GreenIntegratedDesign.com

YourGreenID.com

Office: (602) 730-2966

ROC 273772

Have You Ever…

Had clients passed up

a potential home

because the

appliances or AC

system was old and

needed replacement?

Or…

Have You Ever…

Had a client that

found their dream

home, but it was

slightly out of their

price range?

Have You Ever…

Let me tell you a well-kept secret

Called Energy Efficiency Mortgages

(EEMs)

What Is An Energy Efficiency Mortgage?

• Allows a buyer to roll the cost of energy

efficiency features into the mortgage as long as

the whole package is cost effective.

• Buyer qualifies for higher amount because of

energy savings

• Energy savings must be documented

Energy Efficiency Mortgage

• Not a new program, started with FHA in 1993

• Purpose – to help homeowners save money on

utility bills by enabling them to finance the cost of

energy efficiency upgrades into their mortgage

• “An EEM recognizes the energy savings of a home

that has “cost effective” energy saving

improvements that increase the energy efficiency

of a home.” 1993 HUD Mortgage Letter

Benefits to Loan Officers & Realtors

Differentiates yourself in a competitive

market

Allows homeowner to qualify for higher loan

amount

Easy process

Lower utility bills can lead to lower client

defaults

Benefits to Your Clients

Lower energy bills and a more comfortable

home

Can qualify for a larger loan on a better

home, with more living space and a better

location

Eliminates hidden expenses on utility bills

Easily pay for energy improvements

Let me take a step back

(beep, beep, beep)

Our Inefficient Homes

• Most homes are built to code, which

is the worst we can legally build anything

• Use 50% to 60% more energy due to

inefficiency

Our Inefficient Homes Result In

• Hot, uncomfortable rooms

• High utility bills

• Shortened life of heating and cooling

equipment

• Weak airflow

• Unsafe conditions

• Critters and bugs getting inside

• Poor air quality

So how do we know

what to do first? Or

how we can fix it?

[Enter] Energy Audit… which tests

Air & Duct Leakage With A Blower Door

• Measures air duct leakage

• Find infiltration points

Duct Leakage• APS & SRP: “An average home leaks 20% of its

conditioned air to the outside”

Air Balancing

Room-by-Room Pressure Measurements

Insulation & Attic Inspection

The most important feature is not how much you

have, but how it was installed

Combustion Testing

• Test Combustion

Efficiency

• Test Flue Systems

• Check Carbon

Monoxide

• Combustion Safety

Infrared Analysis

AND NOW BACK TO

OUR REGULARLY

SCHEDULED

PROGRAM

Types of EEM Qualifying Improvements

Envelope

• Air sealing

• Insulation

• Privacy screens & shutters

• Windows

Mechanical

• Duct sealing

• High efficiency HVAC

• Water heating

• Appliances

Solar

• Solar hot water

• Solar electricity

There are

4 different

types of

EEMs

When Can an EEM Be Used?EEMs Key Features

1. Federal Housing

Administration

(FHA)

Purchase or refinance

Traditional loan limits may be exceeded

No re-qualifying & no additional down payment

No new appraisal

$4,000 or 5% of the property value may be

financed

2. 203(k) FHA

Home

Rehabilitation

Loans

Home buyer obtains a single loan to finance both

property and complete major improvements after

the time of loan closing

EEM can be used in conjunction with a 203(k)

Loan limits may be exceeded

Total cost of improvements must exceed $5,000

When Can an EEM Be Used?EEMs Key Features

3. Veterans Affairs

(VA)

$3,000 of upgrades may be financed based solely

on documented costs

Up to $6,000 may be financed if upgrades are

deemed cost effective

4. Fannie Mae &

Freddie Mac

Secondary market guidelines permit approved

lenders to increase ratios 2% on the debt-to-

income requirements for EEMs

The expanded qualifying ratio help purchasers

who are “maxed out” on their income ratios

The FHA EEM

• Most popular and most user friendly of all EEMs

• Can be used for purchase or refinance

• No additional qualifying or down payment

• No additional appraisal needed (that’s right!)

• Up to 5% of property value added to loan for improvements

• 90 days to complete the work

EEM Existing Home Process

• Initial Home Energy Rating (HERS)

• Improvement Analysis (energy modeling)

• Reporting

• Improvement Work

• Final Inspection

HERS Index

• A MPG rating for a home

• A home built in 2006 would

receive a HERS score of 100

• Inputs include insulation,

windows, duct and air

leakage and cost analysis

HERS Report

• The HERS Report (Improvement Analysis & HERS

Rating) will provide all of the necessary energy

savings documentation for underwriting

approval

Determining EEM Amount• The maximum amount available for energy

improvements in FHA EEM is the lesser of 5% of 1

of the following 3:

Check Original Value EEM Amount (5% of Original Value)

Appraised value $175,000 $8,750

115% of the median area price of a single family dwelling

Median price: $250,000

$14,375

150% of the conforming Freddie Mac limit

Limit; $417,000 $31,275

HERS Raters

• Facilitate energy

recommendations and upgrades

between LO’s, realtors,

homeowners and contractors

• Determine available rebates and

tax incentives

• Provide necessary HERS

documentation for LO’s

• Perform test-out verification to

ensure measures were installed

correctly

Improvement Analysis

Item Existing Proposed Cost Present

Value

Duct leakage 233 CFM25 75 CFM25 $1150 $6483

Infiltration 0.75 ACH 0.55 ACH $950 $1368

Insulation R-12 R-38 $900 $1694

Heat pump 8 SEER 15 SEER $4800 $1121

Water heating 0.89 EF 2.20 EF $1350 $5376

Totals $9,150 $16,042

Contractor

• Provide written bids and guarantees for efficiency upgrades

• Must be installed to Energy Star Standards

• Provides references, contractors license, business license and liability policies

• 203(k) Homeowner / Contractor Agreement, 203(k) Contractor Profile submitted to 203k underwriter

Home Efficiency Roadmap

1. Building Fundamentals

▫ Insulation, Ducts, Air Leakage, Water

Conservation, Management, Lighting,

Appliances, Plug Loads

2. Major Systems

▫ Heating & Cooling, Ventilation, Water Heating

3. Renewable Resources

▫ Solar PV, Solar Thermal

Steps to CloseProcess Notes Parties

1. Homeowner finds

their dream house

or homeowner

wants to refinance

Realtor or Lender tells

their client about EEMs.

Homeowner,

Realtor, Lender,

HERS Rater

2. HERS Rating is

performed on the

house

Rating can be done after

appraisal and home

inspection

HERS Rater & client

identify which

upgrades to target

3. Improvement

Analysis goes to

Lender for approval

Lender will evaluate the

rating and financial

analysis done by the Rater

to see if home qualifies

HERS Rater and

Lender

Steps to Close

Process Notes Parties

4. Lender sends the loan

package to the

underwriter

There are different forms

for FHA/VA/Conventional

stretch loans

Lender,

Underwriter

5. Obtain normal loan

underwriting approvals,

internally and externally

Lender,

Underwriter

6. Lender puts extra funds

to pay for energy

improvements into

escrow

Lender

Case Study

Standard Loan EEM Loan

Loan Amount $165,000 $175,740

Interest Rate 4.5% 4.5%

Improvements $0 $10,740

Monthly Payment with PITI

$1,103 $1,168

Energy Bills $270 $150

True Monthly Cost $1,373 $1,318

Monthly Savings +$55

Annual Savings +$660

Additional Benefits

• Receive $4,924 cash back from APS or SRP in

utility rebates

• The appraised value increased

• The home is more comfortable & healthy to

live in

Case Study: Documented Before and

After Changes a Homeowner Can See…

Floor area 2964 sq ft 2964 sq ft

Air leakage 0.75 ACH 0.38 ACH

Duct leakage 233 CFM25 75 CFM25

Heat pump 8 SEER 16 SEER

Water heating 0.89 EF 2.80 EF

Insulation R-12 R-38

Walls R-11 R-11

And Save!

Cooling $1,369 $620

Heating $180 $92

Hot water $333 $131

Appliances $443 $443

Annual costs $2,325 $1,286

HERS Index 155 82

This is what the HERS Report look like, and

what the Rater will provide to the LO

More

Exa

mple

s

Excitin

g s

tuff, is

n’t it?

Questions?

David Byrnes, LEED AP

Home Performance Specialist

dbyrnes@GreenIntegratedDesign.com

www.YourGreenID.com

(602) 730-2966

ROC 273772

facebook.com/aGreenID

twitter.com/Green_ID1

APS Rebates

□ Duct sealing 75% off up to $250 per unit

□ Air sealing 75% off up to $250

□ Insulation 75% off up to $250

□ Shade screens $1 per sq ft up to $250

□ High Efficiency AC up to $525

□ Solar Hot Water $2,500 ($0.50 / kWh annual energy savings)

□ Solar Electricity $1.45 per watt

SRP Rebates

□ Duct sealing 75% off up to $175 per unit

□ Air sealing 75% off up to $250

□ Insulation 75% off up to $250

□ Shade screens $0.80 per sq ft up to $250

□ High Efficiency AC up to $400

□ Solar Hot Water $2,250 ($0.45 / kWh annual energy savings)

□ Solar Electricity $1.35 per watt