November 25, 2017

FHA Energy Efficient Mortgage (EEM) Can Reduce Home Energy Costs

The largest monthly expenditure for most homeowners, after the mortgage payment, is for heating and cooling.  Making a home more energy efficient can result in substantial monthly savings.

The FHA has a program that allows homeowners to borrow the funds necessary to upgrade a home’s energy efficiency.  Besides lowering utility bills, an energy efficient home will have a higher market value and make the home more attractive to potential buyers when the time comes to sell.

Here are the most common questions asked about the FHA Energy Efficient Mortgage (EEM) program.

What Do I Need To Do To Qualify For An Energy Efficient Mortgage?

The process starts by getting an energy efficiency audit of the home, known as the Home Energy Ratings Systems report.  A professional FHA approved inspector will conduct an in depth inspection of the home looking at everything from the age of heating units to the type of appliances currently installed.  Based on the inspection, the rater will determine how energy efficient the home is and the cost of the home’s annual energy use.

Will I Know In Advance The Cost of Improvements and How Much I Can Expect To Save?

The rater will then make recommendations on the the types of upgrades and improvement that are necessary to reduce energy consumption.  The rater’s report will estimate the cost of the energy savings improvements, the amount of savings once the upgrades are completed and an estimate of how long the upgrades will remain functional.

If I Am Purchasing A Home, Will The EEM  Mortgage Require A Larger Down Payment?

No, the entire cost of the energy efficiency upgrades can be financed, subject to certain dollar limitations as noted below.

Can I Get An EEM With The FHA 203(k) Loan?

Yes, the EEM mortgage can be applied for at the same time as the 203(k) loan.  Improvements can be completed after the home is purchased.

What Are The Loan Limits On The EEM?

The FHA can approve the Energy Efficient Mortgage up to $4,000, or a maximum of 5% of the home’s value up to $8,000.  On a home valued at $150,000, the maximum loan allowed would be up to $7,500.

Can I Get Approved For An EEM If I Am Already Borrowing The Maximum FHA Loan Limit?

Yes, the FHA allows the EEM to be approved even if the borrower is at the maximum FHA loan limits.  In addition, the combined loans may exceed 100% of the property value.   For example, on a purchase of a home for $160,000, the maximum FHA loan limit would be $154,400 or 96.5% of the home’s value.  In addition, an EEM of $8,000 may also be approved, representing 5% of the home’s value.  The combined loan amounts would be $162,400.