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How to use an energy efficiency mortgage to increase your practice and diversify as told by an Arizona energy auditor. EEMs just the trick up your sleeve that might land you that extra client or two a month. In Phoenix, there is a real movement towards the value of a green home especially with APS and SRP rebates going strong and more homeowners looking to make their home's energy efficient in this new economy.
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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
Recommended