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FHA ENERGY EFFICIENT MORTGAGES
The Energy Efficient Mortgages Program (EEM) helps homebuyers or homeowners save money
on utility bills by enabling them to finance the cost of adding energy-efficiency
features to new or existing housing as part of their FHA-insured home purchase or
refinancing mortgage.
This program seeks to help achieve national energy-efficiency goals (and reduce
pollution) and provide better housing for people who might not otherwise be able
to afford it. By considering the savings on monthly utility bills when determining
how large a mortgage the household can afford, as many as 250,000 more new homebuyers
could qualify per year, according to a 1986 study by the Joint Center for Housing
Studies. Although EEMs have been available in some States since 1980, they have
been little understood or marketed. With EEMs, borrowers do not need to get a
separate, costly loan for energy improvements when buying an existing home.
Type of Assistance:
EEM is one of many FHA programs that insure mortgage loans--and thus encourage
lenders to make mortgage credit available to borrowers who would not otherwise
qualify for conventional loans on affordable terms (such as first time homebuyers) and
to residents of disadvantaged neighborhoods (where mortgages may be hard to get).
Borrowers who obtain FHA's popular Section 203(b) Mortgage Insurance for One- to
Four-Family Homes are eligible for approximately 97 percent financing, and are
able to fold closing costs and the up-front mortgage insurance premium into the
mortgage. The borrower must also pay an annual premium.
EEM can also be used with the FHA Section 203(k) rehabilitation program and
generally follows that program's financing guidelines.
Eligible Customers:
All persons who meet the income requirements for FHA's standard Section 203(b)
insurance and can make the monthly mortgage payments are eligible to apply. The
cost of the energy improvements and estimate of the energy savings must be
determined by a home energy rating system (HERS) or an energy consultant.
Up to $200 of the cost of an energy inspection report may be included in
the mortgage. Cooperative units are not eligible; individual condominium units
may be insured if they are in projects that have been approved by FHA or the
Department of Veterans Affairs, or meet certain Fannie Mae guidelines.
Eligible Activities:
EEM can be used to make energy-efficient improvements in one- or two-unit
existing and new homes. The improvements can be included in a borrower's
mortgage only if their total cost is less than the total dollar value of
the energy that will be saved during their useful life. The cost of the
improvements that may be eligible for financing as part of the
HUD mortgage is
either 5 percent of the property's value (not to exceed $8,000) or $4,000 -- whichever
is greater. The current mortgage limits can be found at
www.fhaloan.com/lending_limits.cfm.
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