Mortgage Definition: Green Mortgage

Date:July 15, 2010 | Author: | Category:Mortgage Types

Editors Note: I would like to introduce you to a new weekly feature on Mortgages Unzipped, Justin McHood’s Mortgage Definitions. Each week Justin will define a new word or term from the world of consumer mortgage. Here is Justin’s first. Enjoy! (Mike Price, MU Editor):

Today’s Justin McHood Mortgage Definition comes from an increasingly popular buzz-word in the mortgage industry that consumers may want to familiarize themselves with.

Today’s Mortgage Definition is: Green Mortgage.

Main Entry: green mort·gage

Pronunciation: \grēn ˈmȯr-gij\

Green Mortgage – A Simple Definition:

A green mortgage can be any one (or multiple) supplemental incentives that can added to a traditional mortgage program so the person buying the home can use funds to improve the home’s energy efficiency rating by making various “green” improvements.

And depending on where you live, a green mortgage may save you a lot of… well, green.

Green Mortgage – The Expanded Definition:

The general idea behind a green mortgage is that in the process of buying a house, funds can be set aside for energy efficient improvements to increase the homes green factor.

Just  a few of the possible green improvements that can be approved to increase a home’s energy efficiency include:

  • solar hot water heater
  • other solar heating systems
  • solar cooling systems
  • weatherproofing
  • improvements to the furnace efficiency such as replacement burners or boilers
  • clock thermostats
  • additional insulation in the ceiling, attic, wall and/or floor insulation
  • additional insulation for the hot water heater

When it comes to mortgage programs, it is possible to have a green mortgage with an FHA mortgage, a VA mortgage or a Conventional mortgage – and each program (FHA, VA, Conventional) has different incentives associated with that program.

For FHA green mortgages, HUD issued mortgagee letter 2005-21 that outlines FHA green policies as well as describes a few enhancements to the energy efficient mortgage program designed to make green mortgages more available.  As a result, the FHA green incentives can be used with standard FHA loans (purchase and refinance), rehabilitation (203(k)) loans, condo financing and FHA mortgages in disaster areas.

The FHA green mortgage program basics is an “energy package” in which the cost of the improvements, including maintenance, must be less than the present value of the energy saved over the life of those improvements. In other words, it has to makes sense and save more money than it costs. The one caveat is that the dollar amount cannot exceed 5% of the property’s value (not to exceed $8000) or $4000, whichever is greater.

For VA green mortgages, the mortgage may be increased by:

  • up to $3,000 based solely on the documented costs
  • up to $6,000 provided the increase in monthly mortgage payment does not exceed the likely reduction in monthly utility costs, or
  • more than $6,000 subject to a value determination by VA.

For Conventional green mortgages, when qualifying,  a lender can increase the borrower’s income by a dollar amount equal to the estimated energy savings created by the energy efficient measures.  Typically, a conventional green mortgage is available through lenders who sell to Fannie Mae and/or Freddie Mac.

Green Mortgages.

Three different mortgage programs, all offering slightly different shades of… well, green.

More Information
On the FHA green mortgage program
On the VA green mortgage program
On the Conventional green mortgage programs