Purpose
In 1992,
Congress mandated a pilot demonstration of Energy Efficient Mortgages (EEMs) in
five states. In 1995, the pilot was expanded as a national program. EEMs
recognize that reduced utility expenses can permit a homeowner to pay a higher
mortgage to cover the cost of the energy improvements on top of the approved mortgage.
FHA EEMs provide mortgage insurance for a person to purchase or refinance a principal
residence and incorporate the cost of energy efficient improvements into the mortgage.
The borrower does not have to qualify for the additional money and does not make
a downpayment on it. The mortgage loan is funded by a lending institution, such
as a mortgage company, bank, or savings and loan association, and the mortgage
is insured by HUD. FHA insures loans. FHA does not provide loans. Eligibility
Requirements
| The
borrower is eligible for a maximum FHA insured loan, using standard underwriting
procedures. The borrower must make a 3 percent cash investment in the property.
This 3 percent cash investment is based on the sales price or appraised value
for a refinance. Closing costs are not included in the 3 percent calculation but
may be used to satisfy the requirement. Any upfront mortgage insurance premium
can be financed as part of the mortgage. |
| Eligible
properties are one to four unit existing and new construction. |
| The
cost of the energy efficient improvements that may be eligible for financing into
the mortgage is the greater of 5 percent of the propertys value (not to
exceed $8,000), or $4,000. | | To
be eligible for inclusion in this mortgage, the energy efficient improvements
must be cost effective, meaning that the total cost of the improvements is less
than the total present value of the energy saved over the useful life of the energy
improvement. | | The
cost of the energy improvements and estimate of the energy savings must be determined
by a home energy rating report which is done by a home energy rating system or
energy consultant. The cost of the energy rating may be financed as part of the
costeffective energy package. |
| The
energy improvements are installed after the loan closes. The lender will place
the money in an escrow account. The money will be released to the borrower after
an inspection verifies that the improvements are installed and the energy savings
will be achieved. | | The
maximum mortgage limit for a single family unit depends on its location, and it
is adjusted annually. To find FHA maximum mortgage limits for any county in the
country. The cost
of the eligible energy efficient improvements is added to the mortgage amount.
The final loan amount can exceed the maximum mortgage limit by the amount of the
energy efficient improvements. |
Visit
the FHA
Resource Center to search the FAQs, ask a question or send an email. |