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        What is an FHA Energy Efficient Mortgage?           

The FHA energy efficient mortgage program (EEM) is for existing 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 technologies.

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.

FIND a HERS Consultant

A. Basic Program Requirements.
1. Existing one- and two-unit properties are eligible. Three- and four-unit existing properties are not eligible.
2. 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:
a. 5 percent of the property's value (not to exceed $8,000); or
b. $4,000.

"Cost effective" 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.

3. 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 energy consultant.

The HERS 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 properties.

4. 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:
a. Address of the property.
b. Name of the current owner(s) of the property.
c. Date of the property inspection.
d. Description 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.
e. Description of the modifications recommended to improve the energy efficiency of the property.
f. Estimated costs of the energy improvements, their useful life, and the costs of any maintenance over the useful life.
g. Present estimated annual utility costs before installation of the energy-efficient improvements.
h. Estimated annual utility costs after installation of the energy-efficient improvements.
i. Estimated annual savings in utility costs after installation of the energy-efficient improvements.
j. Printed 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.
k. The following certification statement, signed by the person(s) who inspected the property and prepared the report, must accompany the report:

"I certify, 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 Development."

For streamline refinance transactions, the borrower's monthly payment for principal and interest for the refinance mortgage (which will include the cost for the energy-efficient improvements) must be lower than the monthly principal and interest on the current mortgage.

B. Escrow Account Specifications. 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.
C. Home Energy Rating Report. 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)

FHA Hybrid Adjustable Rate Loans

FHA 2-1 buydown (FHA 203b, Not Allowed on FHA 251)

Energy Efficient Mortgages Program

Reverse Mortgages for Seniors


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