FHA Energy Efficient Mortgage Loan Program

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By enabling homeowners or home buyers to finance the cost of adding energy-efficiency features to existing or new housing as part of their FHA-insured home refinancing or purchase mortgage, the Energy Efficient Mortgages Program (EEM) helps them to save money on utility bills.

This program seeks to help achieve to reduce pollution and reach the national energy-efficiency goals and provide better housing for people who might not otherwise be able to afford it. According to a 1986 study by the Joint Center for Housing Studies, by considering the savings on monthly utility bills when determining how large a mortgage the household can afford, as many as two-hundred and fifty thousand more new home buyers could qualify per year. EEMs have been little marketed and understood, although they have been available in some States since 1980. With EEMs, when buying an existing home, borrowers don't need to get a costly, separate loan for energy improvements.


EEM is one of many FHA programs that insure mortgage loans--and thus encourage lenders to make mortgage credit available to residents of disadvantaged neighborhoods (where mortgages may be hard to get) and to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first-time home buyers). Borrowers who obtain FHA's popular Section 203(b) Mortgage Insurance for One to Four-Family Homes are able to include the up-front mortgage insurance premium and the closing costs into the mortgage and are eligible for approximately ninety-seven percent financing. 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. Borrowers may also consider HUD's Title I Home Improvement Loan program, for energy-efficient housing rehabilitation activities that don't also require refinancing or buying the property.

FHA-approved lending institutions-which include many savings and loan associations, banks and mortgage companies-can make loans covered by EEM insurance.

All persons are eligible to apply who can make the monthly mortgage payments and meet the income requirements for FHA's standard Section 203(b) insurance. The estimate of the energy savings and the cost of the energy improvements must be determined by a energy consultant or a home energy rating system (HERS). Up to two-hundred dollars of the cost of energy inspection report may be included in the mortgage. Individual condominium units may be insured if they are in projects that have been approved by the Department of Veterans Affairs or by FHA, or meet certain Fannie Mae guidelines. However, cooperative units are not eligible.

EEM can also be used with FHA's Section 203(h) program for mortgages made to victims of presidential declared disasters. The mortgage must comply with both EEM requirements, as well as those for Section 203(h) requirements. However, the program is limited to one-unit detached houses.

EEM can be used to make energy-efficient improvements in one to four new and existing homes. Only if their total cost is less than the total dollar value of the energy that will be saved during their useful life, the improvements can be included in a borrower's mortgage. The cost of the improvements that may be eligible for financing as part of the mortgage is either four-thousand dollars or five percent of the property's value (not to exceed eight thousand dollars)--whichever is greater. The maximum mortgage limit for a single-family home is $160,950, plus the cost of the eligible energy-efficient improvements. (Limits may be lower in some areas of the country.)

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