What Is An Energy Efficient Mortgage (EEM)?

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 Energy Efficient Mortgage

FHA’s EEM program 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.

Can I Combine an EEM with my 203(k) Loan?

Yes, the Energy Efficient Mortgage be used in conjunction with the FHA 203(k) program. The EEM can be combined with a 203(k), providing MORE funds than would be allowed if a borrower were to solely obtain a 203(k) 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 Improvements 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 Types of Properties Are Eligible For An EEM?

FHA’s Energy Efficient Mortgage can be used for the purchase or refinance of 1-4 unit new construction and existing homes.

Using An FHA 203k Loan With An Energy Efficient Mortgage (EEM)

FHA allows an Energy Efficient Mortgage (EEM) to be combined with a 203(k), 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.

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