An Energy Efficient Mortgage, known as an EEM provides a borrower with funds that are specifically earmarked for energy-related improvements that have been shown to enhance the energy efficiency of a home and reduce the homeowner’s utility bills.
FHA’s EEM add-on helps homebuyers and homeowners save money on utility expenses by allowing them to include the cost of energy efficient upgrades in their FHA loan. FHA’s EEM provides the means for a borrower to finance qualified energy-saving measures in a single FHA mortgage.
Under the Energy Efficient Mortgage program add-on, a borrower is allowed in most cases to finance into the mortgage 100% of the cost of eligible energy efficient improvements without an appraisal needed of the energy improvements and without further credit qualification of the borrower.
The Energy Efficient Mortgage (EEM) helps enhance an FHA-approved home of energy efficiency that can reduce a homeowner’s utility bills by adding energy saving features to a new or existing home. If you currently have an FHA 203k mortgage, you may be also be eligible for FHA’s EEM program, utilizing these two loans together may provide you more funds for improvements.
EEMs can be used for the purchase of new construction or existing home, or even to refinance a homeowner’s current FHA mortgage. The Federal Housing Administration understands that if a homeowner is required to pay less in utility bills then they would be able to make higher monthly mortgage payments so qualification for the EEM program is not necessarily required.
Taking into consideration of the current environmental and economic circumstances today, there are many benefits to the FHA Energy Efficient Mortgage program, not only does it help homeowners save money but benefits the environment through reduced emissions and energy usage. The additional benefits include:
Requirements and Eligibility for Energy Efficient Mortgage (EEM)
The requirements for eligibility for a FHA energy efficient mortgage is the same as any standard FHA loan. However, the down payment for a combined FHA EEM purchase loan usually requires only a 3% down pay. If you already have a FHA mortgage and wish to utilize the Energy Efficient Streamline Refinance; equity usually is not required.
To complete the process of a FHA Energy Efficient Mortgage, there are two additional steps:
1. Home Energy Rating Report
This report must be from either a home energy rating system (HERS) or an energy consultant. The completed report gives full indication in the improvements that need to be made and will have an estimate of how much you can save each month along with the costs of improvements being less than the present value savings.
2. Amount Needed
The estimated amount is rolled into the FHA home loan and you do not have to qualify for or make any type of down payment in this amount. After the loan closes, the funds are then placed into an Escrow account by the lender. Once the inspection process is completed and the energy improvements have been installed, the money is then released to the borrower.
**The FHA’s Energy Efficient Mortgage can be used for the purchase of 1-4 unit new constructions and existing homes.
Can I combine an EEM with my 203k Loan?
Yes, the Energy Efficient Mortgage be used in conjunction with the FHA 203k program. The EEM can be combined with a 203k, providing MORE funds than would be allowed if a borrower were to solely obtain a 203k Streamline.
Can I refinance with an EEM?
EEMs can be used for the purchase of new construction or existing home, or to refinance a homeowner’s current mortgage. FHA understands that spending less on utility bills permits a homeowner to pay a higher monthly mortgage amount, so borrowers are not required to qualify for the additional EEM funds.
How does FHA determine if proposed Iimprovements are eligible?
Energy-efficient upgrades can only be included in the mortgage if the total, combined cost of the improvements is less than the projected dollar amount they will save the homeowner over their useful lifetime.
To estimate the cost savings, an energy consultant will perform an energy inspection and use a Home Energy Rating System (HERS) to prepare a report. The cost of the consultant’s report and any related fees can be included in the mortgage amount.
When does the homeowner get the money?
After the loan closes, the funds are placed in an escrow account by the lender. Once an inspection verifies that the energy improvements have been installed, the money is released to the borrower.
What type of properties are elgibile for an EEM?
FHA’s Energy Efficient Mortgage can be used for the purchase or refinance of 1-4 unit new constructions and existing homes.
FHA allows an Energy Efficient Mortgage (EEM) to be combined with a 203k, providing funds beyond the FHA loan limits and the buyer’s approved loan amount, up to 5% of the value of the property. The EEM proceeds are earmarked for additional improvements that specifically enhance energy efficiency, resulting in lower utility costs for the home. To qualify, an approved Home Energy Rater may be required to perform an audit on the home to assure that energy savings will exceed the cost of improvements over their useful life.
There are some items which may be completed without a Home Energy Rater Audit. *Check with your Lender for a list of these items.
Did You Know?
A rehab loan can be used for a purchase or refinance, and you do not have to be a first-time homebuyer to use it.