The FHA Home Loan Energy Efficient Mortgage Option
An FHA Energy Efficient Mortgage is actually NOT a separate home loan, but an add-on to any FHA mortgage such as a purchase loan (including FHA Rehab loans, FHA One-Time Close Construction Mortgages, Condo loans, etc.) or an FHA refinance.
It gets confusing because of the word “mortgage” in the EEM acronym. But if you remember that an EEM is an add-on to the loan program you have chosen, it’s easier to keep straight.
What Does An FHA Energy Efficient Mortgage Include?
The FHA Energy Efficient Mortgage program is described on the FHA official site as being a loan option designed to help borrowers save money on their utility bills “by enabling them to finance energy efficient improvements with their FHA-insured mortgage.”
How? By adding extra funds to your home loan for the express purpose of adding energy-saving improvements, upgrades, etc. This is not a new program, it began in 1992 as a pilot program and it wasn’t long (about three years) before it was expanded nationwide.
How It Works
The FHA EEM program allows you to apply for extra money for the upgrades and improvements but you will only be required to qualify for the loan amount before the EEM money is added. In other words, you aren’t asked to credit qualify on the higher amount, only the dollar amount of the loan before the energy efficient upgrade money is added.
The FHA EEM Package
The energy-saving upgrades are referred to by the FHA as an “energy package.” The FHA official site defines this as “the set of improvements that the Borrower chooses to make based on the recommendations and analysis performed by a qualified home energy assessor.”
These improvements can include (but is not limited to) active and passive solar and wind technologies. The additional funds can be used to pay for materials, labor, inspections, and the home energy assessment. The program requires the upgrades to be cost-effective and the improvements to the home must be lender-approved.
How Much EEM Money Is Available?
The FHA official site states that the EEM amount is calculated as the lesser of an energy package with the amount based on the home energy assessment or the lesser of 5 percent of:
- the Adjusted Value;
- 115 percent of the median area price of a Single Family dwelling; or
- 150 percent of the national conforming mortgage limit.
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