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Purpose
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. FHA insured 27,150 EEMs in FY2001, 30,331 in FY2002
and 26,600 in FY2003.
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.
Eligibility Requirements
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The borrower is eligible for maximum FHA-backed loan, using standard
underwriting procedures. The borrower must make a 3-percent cash
investment in the property. This 3- percent cash investment is based
on the sales price. Closing costs are not included in the 3- percent
calculation but may be used to satisfy the requirement. Any upfront
mortgage insurance premium can be financed as part of the mortgage.
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Eligible properties are one- to four-unit existing and new
construction. |
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The cost of the energy-efficient improvements that may be eligible
for financing into the mortgage is the greater of 5 percent of the
property’s value (not to exceed $8,000), or $4,000.
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To be eligible for inclusion in this 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.
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The cost of the energy improvements and estimate of the energy
savings must be determined by a home energy rating report which is
done by a home energy rating system or energy consultant. The cost
of the energy rating may be financed as part of the cost-effective
energy package.
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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.
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The maximum mortgage amount for a single-family unit depends on its
location, and it is adjusted annually. To find FHA Max Mortgage
amounts for any county in the
country. The cost of the eligible energy-efficient improvements
is added to the mortgage amount. The final loan amount can exceed
the maximum mortgage limit by the amount of the energy-efficient
improvements. |
For more information on EEMs:
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