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  1. What is a Location Efficient Mortgage?
  2. How does a Location Efficient Mortgage work?
  3. How are transportation cost savings calculated?
  4. What are the environmental benefits of Location Efficient Mortgages?
  5. How can a community make LEMs available? How can a lender make use of this option?

1. What is a Location Efficient Mortgage®?

A Location Efficient Mortgage® increases the amount of money homebuyers in urban areas are able to borrow by taking into account the money they save by living in neighborhoods where they can shop at nearby stores and use public transit, rather than driving to work and to the mall. The Location Efficient Mortgage® program was designed to encourage the development of efficient, environmentally progressive communities and to reduce urban sprawl and dependence on cars.

2. How does a Location Efficient Mortgage® work?

By realizing that households in urban neighborhoods spend less on transportation, and therefore have more disposable income, than the national average, underwriting Location Efficient Mortgages® increases the borrowing capacity for people buying homes in urban communities. Standard loan underwriting recognizes that a buyer can afford to spend 28 percent of his or her gross monthly income on a mortgage payment; the Location Efficient Mortgage® increases this to up to 39 percent by recognizing transportation-related cost savings, thus increasing the size of the loan available to the consumer. A household earning $50,000 a year, for example, can qualify for a $163,000 mortgage under current lending practices; in today's competitive housing market, that may not be enough. In compact, transit-accessible and pedestrian-friendly neighborhoods, if household members save $200 per month on transportation over their suburban counterparts they can qualify for a $213,000 home.

3. How are transportation cost savings calculated?

By drawing on land-use information such as population density and public transit locations, and census information on car ownership and driving levels, a lender can predict how much a household in a particular location will spend on transportation. Based on this prediction, the lender calculates the difference in transportation costs between an urban household and its suburban counterpart. This dollar amount is then added onto the buyer's qualifying income. The amount can be substantial, as it takes into account savings on vehicle purchases and maintenance, auto insurance, and fuel (the formula for calculating these savings was developed specifically for the Location Efficient Mortgage® program).

4. What are the environmental benefits of using Location Efficient Mortgages®?

By increasing housing opportunities in compact communities, the mortgages achieve three main environmental goals: they reduce fuel consumption, they preserve open space by decreasing the demand for sprawling development and new roads, and they lower air pollution from cars. In this country, cars produce about a quarter of the pollution that causes global warming, as well as a significant portion of the pollutants that cause acid rain, increase children's asthma rates, and cause or exacerbate a host of other ailments including chronic bronchitis, emphysema and lung damage.

5. How can a community make LEMs available? How can a lender make use of this option?

The Location Efficient Mortgage® can be a tool for economic development by making smart growth development more affordable. NRDC is actively seeking lenders with whom to partner in introducing Location Efficient Mortgages to their customers. NRDC is also actively working with investors and policymakers to enable and showcase mortgage transactions in which LEM attributes are present in order to build the market for LEMs. We welcome inquiries from any lenders interested.


The Location Efficient Mortgage® project is a joint effort of the Natural Resources Defense Council, the Surface Transportation Policy Project and the Center for Neighborhood Technology.

The Location Efficient Mortgage® is a service mark owned by the Institute for Location Efficiency. Unauthorized use of this mark is strictly prohibited.

last revised 10/24/2012

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