Fannie Mae & Freddie Mac Energy Efficient Mortgages (EEM)

Conventional EEMs can be offered by lenders who sell their loans to Fannie Mae and Freddie Mac.  Freddie Mac permits the use of higher housing expense to income and debt to income ratios if the home is energy efficient or contains energy efficient items. The Fannie Mae loan also adjusts the value of the home to reflect the value of the energy efficiency measures. There is no maximum income to expense ratio for an EEM, however all mortgages are subject to a maximum debt to income ration of 45%.
Freddie Mac permits the purchase of a property that is to be retro-fitted, refurbished, or improved with energy efficient components. The purchase price may include the cost of the property in addition to the actual cost of the improvements. You can borrow up to 15% of the home’s appraised value for the energy efficient improvements. For a home that appraises at $150,000, you could finance up to $22,500 in energy efficient upgrades. Then that cost is added onto the appraised value of the home.
You do not need to have as much income for a Conventional EEM as you would for a basic mortgage, as they take into consideration the fact the anticipated cost to live in your home is less. Efficiency improvements would reduce the monthly utility costs. Any energy efficiency improvements can qualify, and these mortgages can be combined with both fixed-rate and adjustable-rate mortgages.
The lender may document the mortgage file with an appraisal report indicating the energy efficiency of the home or an established home energy rating system (HERS). The cost of the energy efficient improvements may be included in the mortgage delivered to Freddie Mac prior to completion of said improvements. An escrow account of up to 10% of value may be established to complete the upgrades.
Below is an example of a Conventional Energy Efficient Mortgage at work:

Efficient Home
Efficient Home
Purchase Price $130,000 $130,000
Down Payment $15,000 $15,000
Loan Amount $115,000 $125,000
Interest Rate 6% 6%
Monthly PITI $957 $1,017
Average Utility Bill $224 $112
Total Expenses $1,181 $1,129
Monthly Savings $0 $112
Annual Savings $0 $1,344