What is an Energy Efficient Mortgage?
 
“Energy Efficient Mortgages,” also known as EEMs, make it easier for borrowers to qualify for loans to purchase homes with specific energy-efficiency improvements. Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs.  What is an Energy Efficient Mortgage?

VA Energy Efficient Mortgages
The Veteran’s Administration (VA) EEM is available to qualified military personnel, reservists and veterans for energy improvements when purchasing an existing home. The VA EEM caps energy improvements at $3,000–$6,000.

To learn more about EEMs contact Fannie Mae, Freddie Mac, the FHA or the VA. Additional information about writing energy-efficient mortgages can be found on the Web sites for the U.S. Department of Housing and Urban Development (HUD)  and the Residential Energy Services Network (RESNET)

FHA Energy Efficient Mortgages
FHA EEMs allow lenders to add 100 percent of the additional cost of cost-effective energy efficiency improvements to an already approved mortgage loan (as long as the additional costs do not exceed $4000 or 5 percent of the value of the home, up to a maximum of $8000, whichever is greater). No additional down payment is required, and the FHA loan limits won’t interfere with the process of obtaining the EEM. FHA EEMs are available for site-built as well as for manufactured homes. The Manufactured Housing Research Alliance Web site  has information about FHA EEMs for ENERGY STAR qualified manufactured homes.
 
Conventional Energy Efficient Mortgages
Conventional EEMs can be offered by lenders who sell their loans to Fannie Mae and Freddie Mac. Conventional EEMs increase the purchasing power of buying an energy efficient home by allowing the lender to increase the borrower’s income by a dollar amount equal to the estimated energy savings. The Fannie Mae loan also adjusts the value of the home to reflect the value of the energy efficiency measures.
 
 Mortgage Alternatives
  

Energy Efficient Mortgage
1. A general advice when shopping for mortgage is to look for competitive rates and a lender with a reputation for integrity and good service.
2. Comparing prices is always important, but not easy. A variety of fees a lender may charge could begin with the submission of the loan application, to discount points which are usually the larger fee on a mortgage. Two points more on a loan is a significant increase since it changes the effective interest rate significantly.
3. The annual percentage rate (APR) is a standard expression of credit costs that give borrowers the ability to compare lender’s total finance charges. It is the relationship of total financing charge to the total amount financed or in other words the effective interest rate for a mortgage loan repaid over its full term.
4. Always remember that the actual effective interest rate paid depends on the number of years a loan is kept and is computed as follows: Note rate + (points/8) = Effective Interest Rate. If for example buyer intents to occupy a property for three years should avoid paying points since it will take almost six years to be able to recapture what he paid. It is preferable sometimes the borrower to ask the lender to raise the interest rate in order to avoid paying discount points and origination fees.
 
Fixed- Rate Mortgages
1. A fixed rate mortgage is called a mortgage that precludes a change in the interest rate throughout the entire duration of the loan. Some of the mortgages in this category include the traditional 30-year, the 20-year, the 15-years and even the 10-year mortgage. There are also bi-weekly mortgages which shorten the life of the loan by monthly payment every two weeks.
2. A fixed rate mortgage is good for you if:
 
a. You decided on living at your new home for a long term period of time.
b. You are someone that likes stability on your monthly household budget; and does not have to worry about changing payment amounts or interest rate.
 
30- year Fixed Rate
 
Advantages:
1. Used in a great extend by first-time buyers since is the most common and the easiest to be approved.
2. It has the lowest monthly payments compared to the 15-year and the bi-weekly loans which could be ideal on a tight household budget.
3. Provides stability on future increases in interest and inflation rates.
4. Provides the maximum interest deduction for income tax purpose.

Disadvantages:

1.
In the event of a drop in interest rates the fixed rate mortgage will not drop to reflect the lower market rates. A homeowner will need to refinance i.e. repay the original loan and proceed on a new loan with the lower interest rate. As a result the borrower has to pay a substantial amount of money on closing costs.
 
15 Year Fixed Rate
 
Advantages:
1. Similar with the 30-year, the 15-year mortgage has mortgage rates that throughout the life of the loan do not change so as the monthly principal and interest.
2. Usually the 15-years mortgage has lower interest rates than the 30-year. When lenders get their money faster means less money is borrowed for less time and less interest is paid over the life of the loan (approximately 50percent less).As a result the interest rates are slightly lower which results in forced savings and faster equity buildup.
Disadvantages:
1. Flexibility may be lost since higher monthly payments might not allow the borrower to take advantage of future investment opportunities.
2. Tax advantages related to home mortgages and investment opportunities are lost.
3. There is a risk in the event of future increase in income tax rates to increase the mortgage’s net costs.
 
 Biweekly Mortgage
Advantages:
1. It combines the benefits of the 30-year and 15-year mortgage since it is amortized over a 30-year period and with payments made every two weeks but without the higher payments of the 15-year loan.
2. Many times you can change with an advance notice the biweekly to a traditional 30-year fixed rate.
Disadvantages:
 
1. It threatens borrowers with no stable income or savings and checking accounts.
2. Locks borrowers into payment plans that could setup themselves at their own discretion.
 
 Adjustable - Rate Mortgages
 
Developed during a period of high interest rates, can help prospective home owners to achieve their dream home ownership. The adjustable rate mortgage (ARM) becomes noticeably more popular when interest rates rise and loose popularity when interest rates fall. It allows lender to increase or decrease interest rates depending on changes of a specified index.

Choosing an ARM that has an index that reacts quickly allows you to take full advantage of falling interest rates. On the other hand an ARM that lags behind the market lets you take advantage of lower interest rates in an event of an upward movement. In addition ARM usually contain certain consumer safeguards such as interest rate caps, which limit the amount that an interest rate can flanctuate.This prevents future rising in interest rates and helps the homeowners to maintain an affordable mortgage payment.

Something to remember is that both Fannie Mae and Freddie Mac on transactions with less than 20 percent down on one-year, require being qualified at the initial interest rate plus 2 percent.

Other options that need to be asked when shopping for an ARM are:
1. If a possible transfer of the mortgage to a new home buyers is allowable and whether or not the same terms can be applied if the new home buyer qualifies for the loan.
2. If the ARM could be converted to a fixed rate mortgage at a predetermined period, locking in a lower interest rate.

 
Balloon Mortgages
 
They are short term mortgages that provide a level payment feature during the term of the loan. They have similar features as a fixed rate mortgage but the loans do not fully amortize over the original term. The maturity types could vary and first time mortgages usually have a term of 5 to 7 years. At the end of the loan term the remaining balance has to be paid in full and this could be accomplished by refinancing.
 
FHA Mortgage
 
FHA is a mortgage program in which Federal Housing Administration loans are backed by the U.S. government; which means the lender is reimbursed by the federal government in an event of default by the borrower. FHA is great for first time buyers since its primary benefit is to enable home buyers to purchase a loan with a minimal down payment. Typically, only 5 percent is needed instead of the 20 percent down payment to secure a conventional financing. The amount of the loan is usually based on the average cost of housing within a specific geographic area; thus a borrower that leaves on a larger metro area with higher housing prices can get a higher loan compared with a buyer in rural area and lower housing cost. FHA requires a purchase of a mortgage insurance premium ( MIP) which is usually an up-front of 1.50 percent that could be finance into the loan amount and is paid at closing. One of FHA benefits is that the down payment can be 100% gift funds without the need of verification of the source of the gift. Proof of deposit in the borrower's bank or savings account prior to underwriting approval, is required. In the event of full repayment of a loan backed by FHA you may have money owed to you. In that case you could call a toll free number 800-697-6967 for claims.
 
VA Mortgage
 
VA is another government program, which is designed primarily to enable qualifying veterans to buy a home with no down payments and minimum closing costs. Who is eligible are veterans who served on active duty during World War II, Vietnam era, Korea and Persian Golf conflict. They must have at least 90 days active service during war time and 180 days active service during peace time to be eligible.Va loans could be used to buy a new home or condo, built a new home, purchase and improve a home, refinance or buy a manufactured home. A VA loan has no monthly mortgage insurance premium and can be prepaid with no penalty.
 
Mortgage Tip: and Solutions:
1. In a preconstruction transaction consider a loan with longer interest-rate guarantee. Since projects now take longer to build the six months cap can be replaced by loans which offer 12 month rate protection.
2. In a situation that you need a year or two breathing space, before start making full payments, a fixed-rate loan with an initial buy-down can give you the advantage of lower mortgage payments for a short period of time. The interest rate is   even lower than that of an ARM.
3. If the need of cash flow is as important as building equity, a short-term adjustable ARM of seven to ten years can allow you interest only payments when extra cash needed. Short term ARMS are very competitive with fixed loans.
4. You are an investor that is buying a four-plex and your guidelines do not fit into Fannie Mae or Freddie Mac requirements an Alt-A mortgage could be the solution. A secondary market is established and now mortgagors are more willing to lend loans of $400,000 and up at a prime or sub prime rates.
5. If you need a lower monthly payment and like the security of a traditional fixed rate mortgage, a 40-years fixed-rate loan could be the answer.

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