What is a Green Mortgage?

An Energy Efficient Mortgage (EEM) is a mortgage that rewards a home's energy efficiency in the form of a credit within the mortgage itself. EEM's give borrowers the opportunity to finance cost-effective, energy-saving home improvements as part of their primary home mortgage. EEM's allow for higher debt-to-income qualifying-ratios, thereby allowing borrowers to qualify for a larger loan amounts while creating a better, more energy-efficient home.

To secure an EEM, a borrower typically has to have a home energy "rater" conduct a home energy rating before financing is approved. This rating verifies for the lender that the home is energy-efficient. EEM's are typically used to purchase a new home that is already energy-efficient, such as an ENERGY-STAR-qualified home.

An Energy Improvement Mortgage (EIM) is often referred to as an EEM, since EEM is a term commonly used to refer to all types of energy-related mortgages. However, EIM's are different in that they are used to purchase existing homes that will have energy-efficiency improvements made to them. EIM's allow borrowers to include the cost of energy-efficiency improvements in a mortgage when purchasing an existing home, without increasing the down payment. EIM's allow the borrower to use the money that will be saved in utility bills per the improved energy-efficiency to finance energy improvements. Both EEM's and EIM's typically require a home energy rating to provide the lender with the estimated monthly energy savings and the value of the energy-efficiency measures-known as the Energy Savings Value.

EEM's (and EIM's) are sponsored by federally-insured mortgage-programs (such as FHA and VA) and the conventional secondary-mortgage-market (Fannie Mae and Freddie Mac). Lenders can offer conventional EEM's, FHA EEM's, or VA EEM's.