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Energy Efficient Mortgages (EEMs), a little-known and seldom-used financing tool, can increase your buying power when looking for a home.

An EEM takes into account that the true cost of owning and living in a home includes utility bills. Living in an energy efficient home should free up extra money to go toward mortgage payments, said Leona Hawks, extension housing specialist in the Utah State University Collge of Family Life.Hawks says there are several EEM programs falling into two general categories. The first type allows borrowers buying an existing home or refinancing the home they currently live in, to finance additional dollars for energy improvements. The second type uses adjusted loan qualification rules so that prospective homeowners can qualify for higher mortgage payments on energy efficient homes. The reasoning being that lower energy bills will offset the higher mortgage payment.

The new EEMs are available through the Federal Housing Administration (FHA), the Farmers Home Administration (FMHA), and the Department of Veterans Affairs . Secondary mortgage lenders such as The Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation have developed similar programs, she says.

Each of the agencies that offers EEMs has specific guidelines to determine the eligibility of the home, which improvements qualify and the debt-to-income ratio required to qualify. For instance, Fannie Mae and Freddy Mac accept a 2 percent debt-to-income ratio increase for homes qualifying as "high" energy efficiency, Hawks said.

It works like this: Under the usual 28 percent debt-to-income ratio a borrower would need a monthly gross income of $2,719 to take on a $761 monthly mortgage (based on a $95,000 home, 30-year mortgage at a 9 percent interest rate). The same borrower buying a high energy efficiency home at the same price would only need a monthly gross income of $2,538.

For EEMs that include the price of improvement to an existing home, she says an appraisal of the costs must be submitted to the lender. If they qualify, Fannnie Mae and Freddie Mac will finance additional mortgage money up to 50 percent of the improvements. FHA and VA will increase the loan amount up to $6,000.