FHA Energy Efficient Mortgages

Finance 100% Of The Energy-Efficient Improvements To Your Home

Under the FHA Energy Efficient Mortgage (EEM) Program, a borrower can finance into the mortgage 100 percent of the cost of eligible energy-efficient improvements, subject to certain dollar limitations. To be eligible for inclusion into the mortgage, the energy-efficient improvements must be cost-effective — i.e., 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. The cost of any improvement to the property that will increase the property’s energy efficiency and that is determined to be cost-effective is eligible for financing into the Energy Efficient Mortgage.

How Do I Calculate The Maximum Amount That Can Be Financed In An Energy Efficient Mortgage?

The maximum amount of the portion of the EEM for energy is the lesser of 5% of:

the value of the property, or
115% of the median area price of a single-family dwelling, or
150% of the conforming Freddie Mac limit

As of August 10, 2011 HUD had not made the appropriate changes within the HUD credit manual 4155.1 Rev 5 to reflect the above changes. The maximum limitations noted in the manual for $4,000 and $8,000 are no longer applicable. The Energy Efficient Mortgage worksheet in the manual is also obsolete according the HUD.

Can I Exceed My Appraised Value In Order To Finance The Energy Improvments?

The FHA maximum loan limit for the area may be exceeded by the cost of the energy-efficient improvements. However, the entire mortgage cannot exceed 110 percent of the value of the property. The cost of the energy improvements and the estimate of the energy savings must be determined via a physical inspection of the property by a home energy rating system (HERS) or energy consultant. For a 203k loan, the entire cost of the HERS or energy consultant can be included in the mortgage.

What Energy Improvements Are Allowable In An Energy Efficient Mortgage?

Insulation and infiltration with adequate R-values or infiltration barriers in the form of:

Insulation in ceilings, roofs, or attic floors that are over conditioned spaces, exterior walls, under floors that cover unheated areas, around slabs, around heating and cooling ducts and pipes in areas that are not conditioned, around the sill area and hot water heaters.
Caulking and weather-stripping around window and door areas and at the sill areas.
Special fireplace devices or features, such as combustion-air and flue dampers, and a fire door.
Sealing of the sole plate and penetrations of the exterior shell.
Dampers for exhaust fans.

Windows

Double or triple-paned
Storm windows
Storm or insulated doors

Heating and cooling — new efficient systems may include:

A high-efficiency oil or gas furnace with an Annual Fuel Utilization Efficiency (AFUE) rating of 80% or higher
A high-efficiency heat pump with a Seasonal Energy Efficiency Ratio (SEER) measure of 13.0 or greater
A Heating Seasonal Performer Factor (HSPF) of 7.7 or greater
A central air conditioner with a SEER rating of 13.0 or greater
Water Heaters

Heating and cooling system modifications may include:

A flame retention oil burner
Vent dampers for oil and gas furnaces
Pilotless ignition for gas furnaces
A secondary condensing heat exchanger for gas and oil furnaces

Can An Energy Efficient Mortgage Be Used With The FHA 203k Loan Program?

An Energy Efficient Mortgage can be used with both the Streamline and a Standard 203k loan. One interesting combination is to use the Streamline 203k with an EEM. If your repairs will exceed the $35,000 limitation, the energy-efficient improvements can be pulled out of the 203k calculation (use your energy audit to identify the energy improvements). Once the 203k repair escrow is calculated, the energy improvements can be added back onto the loan, exceeding the $35,000 threshold if needed.