is an FHA Energy Efficient Mortgage?
The FHA energy efficient mortgage program
(EEM) is for
properties. An energy efficient mortgage recognizes the energy savings of a home
that has "cost effective" energy saving improvements, which
increase the energy efficiency of a home. Because the home is
energy efficient, the occupant(s) will save on utility costs
and, thus, be able to devote more income to the monthly
mortgage payment. Energy efficiency mortgage improvements can include
energy saving equipment and active and passive solar
Under the FHA energy efficient mortgage
program, a borrower
can finance into the mortgage 100 percent of the cost of
eligible energy-efficient improvements, subject to certain
dollar limitations, without an appraisal of the
energy-efficient improvements. To be eligible for inclusion
into the mortgage, the energy-efficient improvements must be
"cost effective" (i.e., the total cost of the improvements,
including maintenance costs, must be less than the total
present value of the energy saved over the useful life of the
improvements). The mortgage includes the cost of the
energy-efficient improvements, in addition to the usual
mortgage amount normally permitted.
one- and two-unit
properties are eligible. Three- and four-unit
existing properties are not eligible.
||The cost of any
improvement to the property that will increase the
property's energy efficiency and that is determined to
be "cost effective" is eligible for financing into the
mortgage. Its cost may be added to the mortgage amount
up to the greater of:
of the property's value (not to exceed $8,000); or
means that the total cost of the improvements,
including any maintenance costs, is less than the
total present value of the energy saved over the
useful life of the energy improvement.
The FHA maximum
loan limit for the area may be exceeded by the cost of
the energy-efficient improvements.
||The cost of the
energy improvements, including maintenance costs, and
the estimate of the energy savings must be determined
based upon a physical inspection of the property by a
home energy ratings system (HERS) representative or
representative or energy consultant must be an
independent entity; it cannot be related, directly or
indirectly, to the seller of the property or the
prospective borrower. The contractor selected by the
borrower to install the energy-efficient improvements
may not be related, directly or indirectly, to the
HERS representative or energy consultant. The HERS
representative or energy consultant may be a utility
company; a local, state, or federal government agent;
an entity approved by a local, state, or federal
government agency specifically for the purpose of
providing home energy ratings on residential
properties; or a nonprofit organization experienced in
conducting home energy ratings of residential
||The home energy
rating report prepared by the HERS representative or
energy consultant must be in writing and provided to
the prospective borrower and lender. The report must
contain the following information:
||Name of the
current owner(s) of the property.
||Date of the
of the energy features currently in the property.
This description must include, at a minimum, a
description of the insulation R values in
ceilings, walls and floors; infiltration levels
and barriers (caulking, weatherstripping and
sealing); a description of the windows (storm
windows, double pane, triple pane etc.) and doors;
and a description of the heating (including water
heating) and cooling systems.
of the modifications recommended to improve the
energy efficiency of the property.
costs of the energy improvements, their useful
life, and the costs of any maintenance over the
estimated annual utility costs
installation of the energy-efficient improvements.
annual utility costs
installation of the energy-efficient improvements.
annual savings in utility costs after installation
of the energy-efficient improvements.
name(s) and signature(s) of the person(s) that
inspected the property and prepared the report, as
well as the date of preparation of the report.
following certification statement, signed by the
person(s) who inspected the property and prepared
the report, must accompany the report:
that to the best of my knowledge and belief, the
information contained in this report is true and
accurate and I understand that the information in
this report may be used in connection with an
application for an energy-efficient mortgage to be
insured by the Federal Housing Administration of
the United States Department of Housing and Urban
refinance transactions, the borrower's monthly payment for
principal and interest for the refinance mortgage (which
will include the cost for the energy-efficient
must be lower than the monthly
principal and interest on the current mortgage.
An escrow account may be established for no more than
three months after loan closing to allow for installation
of the energy-efficient improvements. The lender, a
utility company, a nonprofit organization, or a government
agency may administer the escrow account. The escrow
account must be insured and be established at a financial
institution supervised by a federal agency.
The lender must include a copy of the home energy rating
report, performed by the HERS representative or energy
consultant, in the closing package.
Click on the title to learn more about that program:
Standard fixed rate (FHA 203b)
Rehab Loan (FHA 203k)
Condominium Loans (FHA 234c)
FHA adjustable rate mortgage (FHA 251)
Adjustable Rate Loans
FHA 2-1 buydown (FHA 203b,
Not Allowed on FHA 251)
Energy Efficient Mortgages Program
Reverse Mortgages for Seniors