FHA EEM Program – Energy Efficient Mortgages
Energy Efficient Mortgages (EEM mortgages) offered through the FHA are a great way to reduce your expenses, increase your property value, and help the environment. This is a HUD program started by the government to improve energy efficiency across the nation.
What are the Advantages of a FHA EEM?
- Reduce Utility Expenses – The primary purpose of this program is to reduce your energy costs. This can save you money over the life of your loan.
- Temperature Control – Your home will remain cooler in the summer and warmer in the winter due to your homes increas
- Higher DTI Ratios – You can have higher DTI ratios with an Energy Efficient Mortgage. This includes a 33% front end ratio and a 45% backend ratio.
- Increase Property Value – The improvements made to your home may be reflected in an increase in the properties value.
- Potential Tax Benefits – Mortgage interest is tax deductible, whereas energy costs are not. This may cause you to save money by deducting money paid on your mortgage payment versus utility bills.
How to get a FHA Energy Efficient Mortgage:
- Step 1: Get an inspection and report of your home utitiles. This is called a Home Energy Rating Systems (HERS) report. You must use an approved assessor (also referred to often as a rater or inspector). You can find more on this below.
- Step 2: Once the inspector creates the report, they will also provide a thoroughly detailed analysis of what improvements can be made. This will include detailed recommendations of how the properties utilies can be made more efficient, thus reducing the energy required to maintain the home. It will also include an estimate for how much each individual improvement will cost, as well as how much it will likely reduce energy costs.
- Step 3: This can be step 1 or step 3, you need to get prequalified for an FHA EEM loan. We can match you with an FHA lender that offers this program. The lender that we match you with will provide you with a free consultation, and the opportunity to get pre-approved for an FHA EEM loan.
- Step 4: Once you are both prequalified and have the report outlining energy improvement opportunities, you can officially apply and start the loan process. You must decide what energy efficient improvements to include in your “cost effective energy pack”. Depending on the home you want to buy or currently own, you must decide which improvements you want to make. You can include all of them, as long as they do not exceed the amount that can be insured with this program.
- Step 5: Once the loan closes, the funds will be held within an escrow account. This money can only be used for the intended upgrades. Once the work has been confirmed completed, the money will be dispersed to you to pay the contractor.
Frequently Asked Questions
Below are some frequently asked questions about the FHA EEM program:
What is the maximum amount that can be borrowed with this program?
The maximum amount is based upon the value of your property. It is either 5% of the appraised value, or it caps at $4,000 (if $4,000 is greater than 5% of your homes value), or if your home is worth more, it is capped amount at $8,000 (even if 5% of your homes value is higher, $8,000 is the absolute maximum amount allowed). Here are some examples:
- If your home is worth $60,000, you can borrow $4,000 ($4,000 is the cap, which is greater than 5% of the property value).
- If your home is worth $100,000, you can borrow $5,000 (5% is the maximum, unless your property is worth more, in which case you can borrow all the way up to $8,000).
- If your home is worth $300,000, you can borrow $8,000 ($8,000 is the maximum amount allowed for any property)
What are typical energy improvements and what can be included?
You can include any of the HUD approved energy efficient improvements. This includes a variety of enhancements, such as replacing a furnace/cooling system, insulating your home including attics, crawl spaces, and/or pipes and air ducts. Also, various other improvements can be made to floors, ceilings, and windows. May also fix or replace a chimney. Some have also included solar technologies, setback thermostats, and other unique energy enhancement systems.
What can not be included in an FHA EEM loan?
Aside from completely unrelated home improvements, such as general remodeling, you also may not include some seemingly relevant enhancements. This includes air conditioners and roofing. New doors can be included though, as long as they will reduce energy costs.
How do I find the right EEM assessor?
HUD stipulates that the assessor have certain and sufficient training/certification. It is critical that you select one who meets such requirements. You can find an EEM assessor with the required HUD certifications here and here.
Do I have to make a down payment on the FHA EEM funds?
No, you do not have to put any money down to get a FHA EEM. The money is also not factored into your LTV.
Can you apply for an energy efficient mortgage with the 203k Renovation Loan?
Yes, you can include funds for energy efficiency improvements with a FHA 203k loan.
What if the cost of the energy improvements in addition to the loan amount to buy the home I want exceeds the loan limits for my county?
If the combined loan amount of your home purchase along with the cost to make it more energy efficient (called the “cost effective energy package”) exceeds the loan limits for your county, that is perfectly fine. As long as the initial base loan amount (the purchase price minus your down payment) is within the FHA lending limits, it is acceptable.
If I already own a home and want to receive an EEM, will I have to have a credit check and appraisal?
No and no. You will not have to go through the entire loan process again, nor will you have to submit an appraisal.
How do I apply for this program?
You can apply over the phone or online by sending us a consultation request through our website.
You can learn more about HUD Energy Efficient Mortgages here: