1. Financing Energy Improvements with an Energy Efficient Mortgage (EEM) David Byrnes, LEED AP Home Performance Specialist dbyrnes@GreenIntegratedDesign.com (602) 684-0462 ROC 273772

2. Picture This…

3. What Is An Energy Efficiency Mortgage? Allows a buyer to roll the cost of energy efficiency features into the mortgage as long as the whole package is cost effective. Buyer qualifies for higher amount because of energy savings Energy savings must be documented

4. Energy Efficiency Mortgage Not a new program, started with FHA in 1993 Purpose – to help homeowners save money on utility bills by enabling them to finance the cost of energy efficiency upgrades into their mortgage “An EEM recognizes the energy savings of a home that has “cost effective” energy saving improvements that increase the energy efficiency of a home.” 1993 HUD Mortgage Letter

5. Benefits to Loan Officers & Realtors Differentiates yourself in a competitive market Allows homeowner to qualify for higher loan amount Easy process Lower utility bills can lead to lower client defaults

6. Benefits to Your Clients Lower energy bills and a more comfortable home Can qualify for a larger loan on a better home, with more living space and a better location Eliminates hidden expenses on utility bills Easily pay for energy improvements

7. Our Inefficient Homes Most homes are built to code, which is the worst we can legally make Use 50% to 60% more energy due to inefficiency

8. Energy Audit

9. Blower Door Measures air duct leakage Find infiltration points

10. Duct Leakage APS & SRP: “An average home leaks 20% of its conditioned air to the outside”

11. Air Balancing Room-by-Room Pressure Measurements

12. What About Insulation? The most important feature is not how much you have, but how it was installed

13. Combustion Testing Test Combustion Efficiency Test Flue Systems Check Carbon Monoxide Combustion Safety

14. Infrared Analysis

15. Home Efficiency Roadmap 1.Building Fundamentals ▫ Insulation, Ducts, Air Leakage, Water Conservation, Management, Lighting, Appliances, Plug Loads 2.Major Systems ▫ Heating & Cooling, Ventilation, Water Heating 3.Renewable Resources ▫ Solar PV, Solar Thermal

16. When Can an EEM Be Used? EEMsKey Features 1. Federal Housing Administration (FHA)  Purchase or refinance  Traditional loan limits may be exceeded  No re-qualifying & no additional down payment  No new appraisal  $4,000 or 5% of the property value (up to $8,000) may be financed 2. 203(k) FHA Home Rehabilitation Loans  Home buyer obtains a single loan to finance both property and complete major improvements after the time of loan closing  EEM can be used in conjunction with a 203(k)  Loan limits may be exceeded  Total cost of improvements must exceed $5,000

17. When Can an EEM Be Used? EEMsKey Features 3. Veterans Affairs (VA)  $3,000 of upgrades may be financed based solely on documented costs  Up to $6,000 may be financed if upgrades are deemed cost effective 4. Fannie Mae & Freddie Mac  Secondary market guidelines permit approved lenders to increase ratios 2% on the debt-to- income requirements for EEMs  The expanded qualifying ratio help purchasers who are “maxed out” on their income ratios

18. The FHA EEM Most popular and most user friendly of all EEMs Can be used for purchase or refinance No additional qualifying or down payment No additional appraisal needed Up to 5% of property value added to loan for improvements 90 days to complete the work

19. EEM Existing Home Process

20. EEM New Home Process

21. HERS Index A MPG rating for a home A home built in 2006 would receive a HERS score of 100 Inputs include insulation, windows, duct and air leakage and cost analysis

22. HERS Report The HERS Report (Improvement Analysis & HERS Rating) will provide all of the necessary energy savings documentation for underwriting approval

23. Determining EEM Amount The maximum amount available for energy improvements in FHA EEM is the lesser of 5% of: CheckOriginal ValueEEM Amount (5% of Original Value) Appraised value$175,000$8,750 115% of the median area price of a single family dwelling Median price: $250,000 $14,375 150% of the conforming Freddie Mac limit Limit; $417,000$31,275

24. HERS Raters Facilitate energy recommendations and upgrades between LO’s, realtors, homeowners and contractors Determine available rebates and tax incentives Provide necessary HERS documentation for LO’s Perform test-out verification to ensure measures were installed correctly

25. Improvement Analysis ItemExistingProposedCostPresent Value Duct leakage233 CFM2575 CFM25$1150$6483 Infiltration0.75 ACH0.55 ACH$950$1368 InsulationR-12R-38$900$1694 Heat pump8 SEER15 SEER$4800$1121 Water heating0.89 EF2.20 EF$1350$5376 Totals$9,150$16,042

26. Contractor Provide written bids and guarantees for efficiency upgrades Must be installed to Energy Star Standards Provides references, contractors license, business license and liability policies 203(k) Homeowner / Contractor Agreement, 203(k) Contractor Profile submitted to 203k underwriter

27. Steps to Close ProcessNotesParties 1.Homeowner finds their dream house or homeowner wants to refinance Realtor or Lender tells their client about EEMs. Homeowner, Realtor, Lender, HERS Rater 2. HERS Rating is performed on the house Rating can be done after appraisal and home inspection HERS Rater & client identify which upgrades to target 3. Improvement Analysis goes to Lender for approval Lender will evaluate the rating and financial analysis done by the Rater to see if home qualifies HERS Rater and Lender

28. Steps to Close ProcessNotesParties 4. Lender sends the loan package to the underwriter There are different forms for FHA/VA/Conventional stretch loans Lender, Underwriter 5. Obtain normal loan underwriting approvals, internally and externally Lender, Underwriter 6. Lender puts extra funds to pay for energy improvements into escrow Lender

29. Case Study Standard LoanEEM Loan Loan Amount$165,000$175,740 Interest Rate4.5% Improvements$0$10,740 Monthly Payment with PITI $1,103$1,168 Energy Bills$270$150 True Monthly Cost$1,373$1,318 Monthly Savings+$55 Annual Savings$+660

31. Additional Benefits Receive $4,924 cash back from APS or SRP in utility rebates The appraised value increased The home is more comfortable & healthy to live in

32. Case Study: Changes Floor area2964 sq ft Air leakage0.75 ACH0.38 ACH Duct leakage233 CFM2575 CFM25 Heat pump8 SEER15 SEER Water heating0.89 EF2.80 EF InsulationR-12R-38 WallsR-11

33. Case Study: Reduced Costs Cooling$1,369$620 Heating$180$92 Hot water$333$131 Appliances$443 Annual costs$2,325$1,286 HERS Index15582

37. Questions? David Byrnes, LEED AP Home Performance Specialist dbyrnes@GreenIntegratedDesign.com www.GreenIntegratedDesign.com (602) 684-0462 ROC 273772 facebook.com/aGreenID

38. APS Rebates □ Duct sealing75% off up to $250 per unit □ Air sealing75% off up to $250 □ Insulation75% off up to $250 □ Shade screens$1 per sq ft up to $250 □ High Efficiency ACup to $525 □ Solar Hot Water$2,500 ($0.50 / kWh annual energy savings) □ Solar Electricity$1.45 per watt

39. SRP Rebates □ Duct sealing75% off up to $175 per unit □ Air sealing75% off up to $250 □ Insulation75% off up to $250 □ Shade screens$0.80 per sq ft up to $250 □ High Efficiency ACup to $400 □ Solar Hot Water$2,250 ($0.45 / kWh annual energy savings) □ Solar Electricity$1.35 per watt

40. Types of EEM Qualifying Improvements