HUD FHA Insured Energy Efficient Mortgages by alicejenny


									HUD FHA Insured Energy Efficient Mortgages                                                                                       7/14/11 10:17 AM

 HUD >     Program Offices >   Housing >     Single Family >   Energy Efficient >   HUD FHA Insured Energy Efficient Mortgages

 Energy Efficient Mortgage
 FHA's Energy Efficient Mortgage program (EEM) helps homebuyers or homeowners save money on utility
 bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing
 as part of their FHA insured home purchase or refinancing mortgage.


 In 1992, Congress mandated a pilot demonstration of Energy Efficient Mortgages (EEMs) in five states.
 In 1995, the pilot was expanded as a national program.

 EEMs recognize that reduced utility expenses can permit a homeowner to pay a higher mortgage to
 cover the cost of the energy improvements on top of the approved mortgage. FHA EEMs provide
 mortgage insurance for a person to purchase or refinance a principal residence and incorporate the cost
 of energy efficient improvements into the mortgage. The borrower does not have to qualify for the
 additional money and does not make a downpayment on it. The mortgage loan is funded by a lending
 institution, such as a mortgage company, bank, or savings and loan association, and the mortgage is
 insured by HUD. FHA insures loans. FHA does not provide loans.

 Type of Mortgage:

 EEM is one of many FHA programs that insure mortgage loans--and thus encourage lenders to make
 mortgage credit available to borrowers who would not otherwise qualify for conventional loans on
 affordable terms (such as first time homebuyers) and to residents of disadvantaged neighborhoods
 (where mortgages may be hard to get). Borrowers who obtain FHA's popular Section 203(b) Mortgage
 Insurance for one to four family homes are eligible for approximately 96.5 percent financing, and are
 able to add the upfront mortgage insurance premium to the mortgage. The borrower must also pay an
 annual premium.

 EEM can also be used with the FHA Section    203(k) rehabilitation                     program and
 generally follows that program's financing guidelines. For energy efficient housing rehabilitation activities

 that do not also require buying or refinancing the property, borrowers may also consider HUD's     Title
 I Home Improvement Loan program.

 How to Get a EEM:

 To apply for an FHA insured energy efficient mortgage, contact an    FHA approved
 lender .

 Eligible Customers:

 All persons who meet the income requirements for FHA's standard Section 203(b) insurance and can
 make the monthly mortgage payments are eligible to apply. The cost of the energy improvements and
 estimate of the energy savings must be determined by a home energy rating system (HERS) or an
 energy consultant. The cost of an energy inspection report and related fees may be included in the
 mortgage. Cooperative units are not eligible.                                                   Page 1 of 2
HUD FHA Insured Energy Efficient Mortgages                                                                       7/14/11 10:17 AM

 EEM can also be used with FHA's Section 203(h) program for mortgages made to victims of
 presidentially declared disasters. The mortgage must comply with both Section 203(h) requirements, as
 well as those for EEM. However, the program is limited to one unit detached houses.

 Eligible Activities:

 EEM can be used to make energy efficient improvements in one to four existing and new homes. The
 improvements can be included in a borrower's mortgage only if their total cost is less than the total
 dollar value of the energy that will be saved during their useful life. Other eligibility requirements may be

 found in the   Homeowner's Guide.
 Eligibility Requirements

    The borrower is eligible for a maximum FHA insured loan, using standard underwriting procedures.
    The borrower must make a 3.5 percent downpayment. This 3.5 percent downpayment is based on the
    sales price or appraised value. Any upfront mortgage insurance premium can be financed as part of
    the mortgage.
    Eligible properties are one to four unit existing and new construction. EEMs may be added to some
    other loan types, including streamline refinances.

    The cost of the energy efficient improvements that may be eligible for financing into the mortgage is
    the lesser of A or B as follows:

    A. The dollar amount of cost-effective energy improvements, plus cost of report and inspections, or

    B. The lesser of 5% of:

             The value of the property, or

             115% of the   median area price of a single family dwelling, or
             150% of the conforming Freddie Mac limit.

    To be eligible for inclusion in the mortgage, the energy efficient improvements must be cost effective,
    meaning that the total cost of the improvements is less than the total present value of the energy
    saved over the useful life of the energy improvement.
    The cost of the energy improvements and estimate of the energy savings must be determined by a
    home energy rating report that is prepared by an energy consultant using a Home Energy Rating
    System (HERS). The cost of the energy rating report and inspections may be financed as part of the
    cost effective energy package.
    The energy improvements are installed after the loan closes. The lender will place the money in an
    escrow account. The money will be released to the borrower after an inspection verifies that the
    improvements are installed and the energy savings will be achieved.
    The maximum mortgage limit for a single family unit depends on its location, and it is adjusted

    annually. Look online to find FHA's   maximum mortgage limits by county.
 Technical Guidance:

 EEM is authorized under Section 513 of the Housing and Community Development Act of 1992. Program

 regulations are listed on the   EEM mortgagee letter web page.
 For More Information:

 Visit the   FHA Resource Center to search the FAQs, ask a question or send an email.
 Return to EEM Home                                   Page 2 of 2

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