ENERGY STAR residential branch financing coordinator, U.S. Environmental Protection Agency

Darrick Meneken

As published in Scotsman Guide's Residential Edition, March 2010.

The demand for energy-efficient mortgages will escalate as energy costs increase, according to Brian Ng of the U.S. Environmental Protection Agency's ENERGY STAR program (energystar.gov). Ng shares more about how he works to educate mortgage brokers about energy-efficient loan products.

What makes an energy-efficient mortgage?

It's a mortgage homebuyers can obtain if they're either buying a home that's already energy-efficient or a home that needs energy-efficiency improvements. Energy-efficient mortgages count energy savings as income, thereby allowing borrowers to qualify for a slightly larger mortgage.

Where can mortgage brokers find energy-efficient mortgage products?

Fannie Mae and Freddie Mac offer energy-efficient mortgages. So do the Federal Housing Administration and the U.S. Department of Veterans Affairs. Also, some national and local banks have developed their own green mortgage programs, which typically involve either an interest-rate reduction or a closing-cost credit.

Why should brokers care about these programs?

As energy costs go up, the demand for energy-efficiency is going to increase, and that is going to drive lenders and brokers to want to get involved in offering some sort of special financing for energy-efficiency measures.

Do energy-efficient mortgages require special steps?

Typically, borrowers have to get what's called a home-energy rating done on the home. A home-energy rating is an indicator of the level of energy-efficiency of a home. From that energy-rating report, the home-energy rater calculates the present value of the energy savings of the home. It's that value that lenders can add to the mortgage transaction. If a home already has the ENERGY STAR label, the borrower can get an energy-efficient mortgage. The energy-efficient mortgage, however, is not exclusive to the ENERGY STAR label.

Do we know how many U.S. borrowers have energy-efficient mortgages?

I know the number is extremely small relative to the total number of mortgages that have been written.

Why aren't they more popular?

You have the extra step of getting a home-energy rating done on the home, and you have the additional cost of paying for that rating. Lenders and borrowers often don't want to do anything that slows down the transaction. But the idea is that the energy savings that borrowers get more than offsets the additional monthly mortgage payment.

Darrick Meneken is an associate editor at Scotsman Guide. Reach him at (800) 297-6061 or darrickm@scotsmanguide.com.