A shelter is a basic human need. The need for housing continues to rise with the increase in population. The housing industry has undergone a huge transformation with advances in technology. This has enabled the provision of diverse services that improve the homeownership experience.
Mortgage
The evolution of the industry has seen a commensurate rise in the cost of home ownership. The majority of the population cannot afford housing without the help of financial mechanisms. This need led to the birth of the mortgage.
Simply put, a mortgage is a facility that enables the individual to borrow money from a bank or any other financial institution for homeownership purposes.
Lately, there has been an awareness program that seeks to get things done efficiently with little or no harm to the environment. This has led to a campaign to upgrade homes in compliance with the green revolution.
Green mortgages
Green mortgages are loan facilities that allow the transformation of a house into an environmentally friendly unit. These environmentally friendly improvements also help in driving down the cost of running essential services like cooling and heating the houses in the long run.
These loans are also known as energy efficient mortgages (EEM’s). Far from being secondary mortgages, EEM’s are disbursed separately but can be incorporated into the original mortgage payment plan. This allows for single monthly payment plans.
Benefits of Green mortgages
What are the immediate benefits of EEM’s? Here are some facts about domestic energy usage that can help put this into perspective.
•  Insulation is a major factor when it comes to driving up costs of energy in the home
•  Heating and cooling accounts for between 50-70% of domestic energy usage
•  Updating your house insulation can save up to 10% of your annual energy bill.
These losses occur due to structural inefficiencies within the home.
For example, loss of energy from inefficient insulation in the windows accounts for approximately 25% of the yearly cost of heating and cooling the home.
Similarly, installation of newer versions of efficient electronic appliances can lead to much-needed savings.
Apart from saving annual cooling and heating costs, these mortgages also help in saving the environment. Environmental conservation is a major theme of sustainable development.
Homes that have energy efficient upgrades have a comparative advantage over homes that don’t in the following day to day user experiences.
- Durability: These homes last longer than others without upgrades due to the new technologies that maximize utility while saving costs.
- Maintenance costs: Appliances that are outdated and inefficient tend to consume more energy and break down frequently.
- Lesser costs per month: Due to lower energy consumption and minimal breakages, these appliances ensure that monthly maintenance costs are at a bare minimum.
Guide for Energy Efficient Mortgage
The EEM is not a secondary loan. It is normally rolled up into your initial mortgage loan allowing you to make a single monthly payment. In case you are building a new house, you will have to apply for a normal mortgage loan then get an EEM loan as an add-on.
How can a green loan work for you?
A major advantage of a green loan is the ability to increase your loan ceiling by a significant percentage. This allows you to get a better house with the same monthly income. The benefits increase with the lower monthly charges from running efficient technologies.
Types of EEM’s
There are three major types of EEM’s. It is important to seek advice from your lender when seeking a mortgage. This helps in identifying the type that suits your needs.
1.  Conventional energy efficient mortgage: The loan is offered by those who lend the secondary mortgage market. It is also the most lucrative. It offers 15% of the appraised house value as EEM.
2.  Federal Housing Administration (FHA) Energy efficient mortgage: The FHA mortgage does not offer as big a margin as the conventional EEM. You can borrow 5% of the least amongst the following categories
a)Â Â The home value after appraisal.
b)Â Â 115% of the single-family home cost.
c)Â Â 150% of the Freddie Mac limit for the location.
3.  Department of Veterans Affairs (VA) energy efficient mortgage: It is eligible for serving military personnel and qualified veterans. This may only be used when purchasing or refinancing a home. It allows the applicant to borrow an additional fixed amount if the planned energy savings are more than the mortgage payment increase. Or a fixed amount that covers the cost of the improvements.
A lender may offer multiple types of loan and in some cases all three.
How much money is needed for improvements?
The conventional and FHA loans do not have limit caps on the amount to be loaned as EEM. They are rather tied to the appraised value of your home or the location of the said property. Only VA loans have a fixed cap on the amount forwarded as EEM.
Scope of EEM payments
These are the type of improvements that the green loans cater to.
Double paned windows, insulation, tankless water heaters, energy efficient heating/cooling systems, repairing or replacing a chimney and installing solar upgrades.
Eligibility
Anyone that qualifies for a regular mortgage loan also qualifies for the EEM loan. However, the upgrades of the EEM have to be cost-effective. This means that their cost has to be less than the savings accrued over its entire lifespan. For example, if a cooling system costs $300, the savings over time that the device offers has to be equal or higher than the cost.
HERS (Home Energy Rating System) report
The HERS report can be equated to a feasibility study to establish where the EEM upgrades would be needed most. There are trained energy raters who can perform a comprehensive evaluation of your home and advice on where further improvements can be made.
The raters work closely with the lender to calculate how much your upgrade will cost. It is important to note that the HERS is a separate service. The cost might range between $300-800. But this can be included in the EEM loan depending on the lender.
Once the report is complete, the lender deposits the EEM loan into an escrow account. As nation21loans says , The borrower then has 90-180 days to hire professionals to implement the recommended upgrades. Some borrowers will decide to carry out the renovations by themselves.
But they cannot charge labor costs. The money is paid to the borrower after inspection to verify that the modifications and subsequent savings are real.
Green mortgages for small businesses
We have dwelt a lot on homes so far. Businesses also benefit from energy efficient upgrades. Studies have shown that 43% of customers prefer to deal with businesses that are green.
Small to medium-sized businesses stand a chance to improve their bottom lines from savings associated with green upgrades.
Seeking EEM’s is a good way to maximize income while reducing operational costs for businesses
Just like homes, businesses have different types of EEM loans.
1.  Small Business Administration (SBA) loans: This is an independent agency of the federal government formed to help citizens start and grow businesses. The SBA does not offer financing. It guarantees loans forwarded to businesses by traditional lenders. Applicants must first meet the criteria set by both the SDA and the lender to access these loans.
2.  State energy efficiency financing loans: These are state-based initiatives that offer businesses loans at low-interest rates. These will defer from state to state but are geared towards helping businesses go green. To find out more about your particular state, you can log into the NASEO (National Association of State Energy Officials) website and click on your state https://www.naseo.org/members-states
3.  Commercial PACE loans: The acronym stands for Property Assessed Clean Energy program. This EEM loan initiative was financed by the municipality. The owner would pay the loans over time through increased property taxes. In case of change of ownership, the new owner would continue with the payments because of the inherited green savings. This scheme was halted in 2010 because it was deemed too risky. Some states like California and Maine are lobbying for its revival.
Conclusion
Environmental conservation is a major feature in any human activity today. A rising population needs increased goods and services on a day to day basis. To this end, we cannot overlook the importance of the environment. It is at the heart of human existence. Technology has helped in coming up with alternative ways to solve our daily problems.
The green energy revolution has enabled man to strike a delicate balance with the environment. It’s our duty to embrace this culture. The benefits that come with this shift have far-reaching effects. With the introduction of the EEM loan facility, there is little reason for anyone to be left behind.
Ultimately, the future of the comings generation is heavily dependent on the choices that we make today.
