Energy Efficient Mortgage

HUD has implemented an FHA Energy Efficient Mortgage (EEM) Program. 

The program is for new or existing, 1 and 2 unit properties only. This program can be used on a fixed or an adjustable rate mortgage (ARM). Energy efficiency can include both energy saving, and active and passive solar technologies.

 

A mortgage for the purchase or refinance (including streamline refinance) of a property to be insured under 203(b), 234(c), or 203(k) is eligible for the EEM program. However, for the streamline refinance transactions, the borrower's monthly payment for principal and interest on the refinance mortgage (which will include the cost of the energy efficient improvements), must be lower than the monthly payment and interest on the current mortgage.

 

The cost of the energy-efficient improvements that may be eligible for financing into the mortgage is the greater of 5% of the property's value (not to exceed $8,000) or $4,000.

 

A borrower can finance up to 100% of the cost of eligible improvements, subject to certain dollar limitations. The improvements must be cost effective, which means that the total cost of the improvements (including maintenance costs) must be less than the total present value of the energy saved over the useful life of the improvements.

 

To calculate the present value of the energy savings on the adjustable rate mortgage, the interest rate used must be 3%above the note rate.

 

The home energy rating report prepared by the HERS entity or energy consultant must be a written report provided to the prospective borrower and lender and it must contain the following information:

  • Address of the property
  • Name of the current owner(s) of the property
  • Date of the property inspection
  • Description of the energy features currently in the property. This must include, at minimum, a description of the insulation R values in the ceilings, walls and floors; infiltration levels and barriers (caulking, weather-stripping and sealing); a description of the windows (storm windows, double pane, triple pane, etc) and doors; and a description of the heating (including water heating) and cooling systems
  • Description of the improvements recommended to improve the energy efficiency of the property
  • Estimated costs of any maintenance over the useful life
  • Present estimated annua; utility costs before installation of the energy efficient improvements
  • Estimated annual savings in utility costs after installation of the energy efficient improvements
  • Printed name(s) and signature(s) of the person(s) that inspected the property and prepared the report and the date of preparation of the report. The following certification, signed by the person(s) who inspected the property and prepared the report, must accompany the report:
  • "I certify, to the best of my knowledge and belief, the information contained in this report is true and accurate and I understand that the information in this report may be used in connection with an application for an energy efficient mortgage to be insured by the Federal Housing Administration of the United States Department of Housing and Urban Development."