According to HUD, “In 1992 Congress mandated a pilot demonstration of energy efficient mortgages (EEMs) in five States”. By 1995 that pilot became a nationally implemented program. In 1998 the FHA insured 16,000 energy efficient mortgages. By 1999 that figure was almost doubled with 30,044 EEMs.
The FHA realizes that lower utility costs allow a homeowner to make a higher mortgage payment and still cover the cost of the energy efficient home improvements included in the new mortgage. FHA energy efficient mortgages provide mortgage insurance to purchase or refinance a principal residence and incorporate the cost of energy efficiency improvements into the loan. The borrower doesn’t have to qualify for the additional funds and does not make a down payment on them. The loan is funded by a qualified lender and insured by HUD.
- Borrowers are eligible for maximum FHA financing, using standard underwriting procedures.
- They must make a 3% cash investment in the property. That 3% investment is based on sale price. The closing costs are not included in the 3% but may be used to satisfy the requirement. Up front mortgage insurance premiums can be financed as part of the loan.
- One to 4 unit existing and new construction properties are eligible.
- Energy efficiency improvement costs may be eligible for financing into the loan if they are the greater of 5% of the property’s value (not to exceed $8,000), or $4,000.
- To be eligible for inclusion in the loan, the energy efficiency 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 home improvement.
- The cost of the energy efficiency improvements and estimate of the energy, cost savings must be determined by a home energy rating report which is done by a home energy rating system or energy efficiency consultant. The cost of this service can be financed as part of the loan.
- The improvements are installed after the closing. The lender places money in an escrow account. The money is then released to the borrower after an inspection verifies that the improvements are installed and the energy savings will be achieved.
According to HUD and the FHA:
“The maximum mortgage amount for a single-family unit depends on its location, and it is adjusted annually. As of January 1, 2001, for most parts of the country it was $132,000 for single-family homes. In high-cost areas it can be as much as $239,250. The cost of the eligible energy-efficient improvements is added to the mortgage amount. The final loan amount can exceed the maximum mortgage
For more info on FHA Loans visit our FHA Loan Information Center.limit by the amount of the energy-efficient improvements.”
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