There are many choices for a mortgage loan for a new home or for refinancing an existing loan – local banks, mortgage brokers, on-line lenders, balloon loans, etc. Here are two less common options that may interest you.
One is the Energy Efficient Mortgage (“EEM”), also called a “green mortgage.” This program began by Fannie Mae (backed by the U.S. Department of Housing and Urban Development) in 1979; however, Fannie Mae hasn’t done a good job making either lenders or consumers aware of it.
In a green mortgage, borrowers can add up to 15% of the home’s value to their mortgage amount and use that money for energy improvements. The green mortgage pays for energy upgrades during construction of a new home. It is also available to upgrade an existing home so that homeowners can save money on their energy costs. To be sure the mortgage stays affordable, there is a rule that spending on energy improvements must save the homeowner at least as much as the extra amount the purchase adds to the mortgage. For example, if the cost of upgrading a heating system adds $20 per month to the mortgage payment, it must save the homeowner at least $20 per month average on utility bills.
EEM borrowers get professional assistance deciding which energy improvements give the most “bang for the buck.” A trained energy inspector tours the home to score its existing energy efficiency, and to explain where the biggest energy losses happen. The inspector suggests which energy improvements will result in the most savings on energy costs.
There are two possible obstacles in getting an Energy Efficient Mortgage. One is that lenders may not be aware of the program, since Fannie Mae has not promoted it. The other is that there is some additional paperwork to be done. Since mortgages are already paper-intensive, some lenders may not be willing to do the additional paperwork for an Energy Efficient Mortgage. For more information on green mortgages, visit www.energystar.gov and search for “mortgages.”
Another useful mortgage product is the “reverse mortgage.” Instead of the homeowner sending the bank a check each month on their mortgage, the bank sends the homeowner a check each month. The amount of the loan balance owed against the home goes up incrementally with each payment sent to the homeowner, so a reverse mortgage “eats into” and eventually “eats up” the equity in the home.
The purpose of reverse mortgages is to allow a homeowner with limited income but a lot of home equity to turn that equity into monthly income. This is ideal for elderly persons with limited income but a house that is paid for, or for someone who becomes disabled but has a lot of equity in their home. The loan balance, which keeps growing with each check sent to the homeowner, will be paid in full when the homeowner dies or sells the home. If checks are paid to the homeowner long enough, of course, the mortgage balance will eliminate the homeowner’s equity. However, banks are careful in their calculations. The lender sets the amount of monthly payment they make to the homeowner at an amount that will not run out before the homeowner’s life expectancy. Many banks and lenders offer reversible mortgages. However, because they are not as common as regular mortgages, you may have to ask some questions to locate the person at the bank or lender who handles reverse mortgages.
Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough, NC. She can be reached at 919-732-7300 or email@example.com.
This article was last updated in January 2020.