A location efficient mortgage or LEM is one which is given to people living in a particular location. The condition being that the location should be such that people are able to access very low-priced transportation. The money saved due to reduction in everyday expenditure towards transport can then be channeled towards buying more expensive homes.

• Such type of mortgage is famous in the United States where in some locations the cost of transportation is very low. In areas such as Chicago, Illinois the amount of money saved because of reduced transportation costs can be as high as $300 per month. This means that people in that area can afford more expensive homes than they otherwise would have been able to.
• In conventional mortgages the debt income ratio is calculated and also the cost of the house must not exceed 35% of the annual household income. However in location efficient mortgages this income can rise from 35% to say 39% giving the mortgagors the opportunity to buy bigger or better homes.
• The important point to consider here is that this does not mean lower payments or cheaper homes. It is usually the exact opposite; the purchasing power of the consumer being high, the monthly payments is also higher compared to traditional mortgages. These loans are resalable in the secondary mortgage market through Federal National Mortgage Association.
• Location efficient mortgages are available in Seattle (Washington), Chicago (Illinois), Los Angeles (California), and San Francisco (California). These mortgages were available in these locations as of April 2006 and may have changed in structure or may not be available anymore.
• Location efficient mortgages not only provide the mortgagee with lower risk, it also enables the consumer to access better living conditions. Therefore LEM’s are helpful in improving the quality of the lifestyle of the mortgagor and provide opportunity for investing the extra capital that is saved due to reduced transportation costs.

If you have any additional points or facts to add about location efficient mortgages please feel free to leave a comment.