• Energy efficient mortgage

FHA’s Energy Efficient Mortgage (EEM) program was implemented for homeowners around the country beginning in 1995.  The EEM program strives to assist homeowners by financing cost-effective energy efficient improvements to their homes.  Energy efficient homes have lower operating costs (i.e., utility bills), thus making home ownership more affordable.

Under the EEM, the borrower only needs to qualify for the loan amount used to purchase the home (rather than the loan amount plus the cost of improvements).  The FHA will then insure the lender for the principal balance on the mortgage plus the cost of the energy efficiency improvements.

Cost-effective improvement

The improvements covered under the EEM must be cost effective to qualify for the program.

For existing homes, cost effective improvements result in energy dollars saved that are equal or greater to the cost over the life span of the improvements.  A qualified home energy assessment will determine whether the potential savings are sufficient to classify the investment as cost effective.

A cost effective improvement for a new construction home is one in which the improvement exceeds the standards set forth by the International Energy Conservation Code adopted by HUD.

Home energy assessment

As noted above, the EMM requires the homeowner to perform a cost-benefit analysis of the investment by obtaining a qualified home energy assessment.  The assessment must be performed by a Building Performance Institute Building Analyst Professional, a Building Performance Institute Home Energy Professional Energy Auditor, or a Residential Energy Services Network Home Energy Rater.

Amount to be financed

The EEM program allows the homeowner to finance an amount up to the lesser of: (i) the cost of the improvement based on the home energy assessment; or (ii) lesser of 5.0% of either the adjusted value, 115% of the median price of a single family dwelling in the area, or 150% of the national conforming mortgage limit.  An FHA-approved lender can access FHA’s EEM calculator and can provide further clarity regarding your borrowing limits.

The cost of improvements can include materials, labor, inspections, and the home energy assessment.

Other energy related programs and policies

In addition to FHA’s EEM program, you can take advantage of several other energy related programs.

  • Section 203K Rehabilitation Mortgage – The EEM can be combined with the Section 203K Rehabilitation Mortgage Insurance Program, which allows homeowners to finance various home improvements, repairs, or renovation projects.
  • Energy efficient homes – If your home meets minimum energy efficiency standards, FHA may permit you to extend your qualifying ratio an additional two percentage points above the standard limits to recognize the fact that your cost of ownership will be lower than if you were to purchase a non-energy efficient home. This will allow you to qualify for a higher loan amount.
  • Solar and wind technologies – FHA will allow you to have a higher mortgage amount to cover the cost and installation of solar or wind energy systems.
  • Weatherization – This policy allows you to finance up to $3,500 to pay for basic weatherization items, such as thermostats and insulation.