Energy Efficient Mortgages

In 1992 the FHA piloted an Energy Efficient Mortgage program in five states. The pilot was so successful that in 1995 the program was expanded to the entire nation. The basis of the Energy Efficient Mortgage is that a home buyer can afford a higher mortgage with lower utility expenses.

FHA’s Energy Efficient Mortgage Program insures new or refinanced mortgages for owner occupied buildings. The mortgage includes the cost of energy efficient improvements. The cost allowed for the energy efficient improvements may be either 5% of the value of the property (not to exceed $8000.00) or $4000.00 whichever is greater. The money needed for making the improvements is placed in an escrow account and released to the homeowner after the energy efficient repairs have been inspected. To be eligible for an FHA EEM the buyer must meet all usual requirements for an FHA loan.

In addition to the usual loan requirements several other requirements must be satisfied. The property must be a 1-4 unit home, which will be owner occupied. The buyer must be able to make a 3% cash investment in the property. The cost of the improvements must be less than the expected amount of money to be saved after the improvements are made (in other words the improvements must be cost effective). The cost effectiveness should be determined by a home energy consultant. The cost of the consultant may be financed into the loan.

The FHA Energy Efficient Mortgage is a smart choice because the overall cost of owning an energy efficient home is less than a non-efficient home. Additionally, making your home more energy efficient is good for the environment and future generations. It’s a win-win situation.