Energy Efficiency Mortgage

The Energy Efficiency Mortgage (EEM) from the Federal Housing Administration (FHA) is a great way to finance energy efficiency improvements when purchasing or refinancing a home. Typical EEM upgrades include insulation, sealing ventilation ducts, sealing the building envelope, upgrading mechanical equipment, lighting, renewable energy and replacing windows.

EEM's have been around since the 1970s and if borrows qualify for an FHA mortgage, they automatically qualify for an FHA EEM with no additional requirements. Borrowers can obtain an FHA-insured mortgage with a down payment of as little as 3% and they can also have less-than-excellent credit.

Don't be mistaken. The EEM is not a second mortgage; the money borrowed for energy efficiency improvements is rolled into the first mortgage. In most cases, borrowers can finance as much as 5% of the value of the property towards energy efficiency improvements. Most often, the increase in the monthly payment will be offset by a reduction in the utility bills.

An EEM can also be used to purchase an already energy-efficient home. In these circumstances, the real benefit is the qualification ratios are stretched from 29% and 41% to 31% and 43%, allowing the borrower to qualify for a larger mortgage. There are also EEM programs with higher limits for renovating properties.

The process of obtaining an EEM is simple. The borrower has to have the house analyzed by a third-party certified Home Energy Rater (HERS rater). The rater will make recommendations and specify cost-effective energy improvements they think are appropriate in a report showing their cost, the predicted amount of energy that they will save and predicted reduction in energy-related expenses.

The HERS report and the homeowner-selected set of improvements then become part of the escrow process. Once escrow closes, the homeowner or a qualified project manager (from Harding Construction & Sustainable Solutions) then completes the upgrades. Once the upgrades are completed the HERS rater inspects the work and verifies it was completed.

The EEM is designed to help the home buyer by adding benefits to the regular mortgage deal. If the home qualifies for energy improvements, they are added through the mortgage as an added feature.

Please This e-mail address is being protected from spambots. You need JavaScript enabled to view it if you would like to know more or are considering an EEM. We are happy to share our list of industry professionals who specialize in EEMs, including HERS raters, mortgage lenders and real estate agents.