What is an FHA Energy Efficient Mortgage?

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One way to raise the value of your property and lower your utility bills at the same time is to apply for an FHA Energy Efficient Mortgage or FHA EEM

What is an FHA Energy Efficient Mortgage?

When you're looking for a home to buy with an FHA loan, one of your biggest concerns is naturally how much you'll need to budget for each month in FHA mortgage payments. Add utility bills and any property maintenance you need to do to the equation and it's clear that any way you can trim down those monthly payments is a good thing.

One way to raise the value of your property and lower your utility bills at the same time is to apply for an FHA Energy Efficient Mortgage or FHA EEM. These mortgages are federally recognized, available in all states, and give you the means to upgrade the home you want to buy to make it more energy efficient. The resulting lower utility bills and increased equity in your home will definitely benefit you over the lifetime of your FHA loan. Depending on how much money you save on your energy bills, you could even change your debt-to-income ratio and qualify for a larger FHA loan.

WHAT DO I NEED TO GET AN EEM?

The first thing you need to qualify for an FHA EEM is a report on the property's energy efficiency. This is called the Home Energy Rating Systems report, and is performed by a professional rater. The property is inspected, everything from the insulation to the appliances. Even the windows get a look. The cost of the home as it exists at the time of inspection is calculated and will be compared to projected energy savings after upgrades.

Once the property's current energy efficiency is determined, the inspector makes recommendations on how the property must be improved. The recommendations include a cost estimate for the upgrades and how much the home could save once those upgrades are properly installed. The recommendation also includes information about how long the upgrades will last until they must be repaired or replaced.

WHAT SHOULD I KNOW ABOUT FHA EEM?

FHA mortgages have loan limits, but if you apply for an FHA EEM, you are entitled to exceed the loan limit if the amount of the EEM money exceeds that limit. FHA Energy Efficient Mortgages are for $4000 or 5% of the property value up to $8000. If you are applying for an EEM after your home has already been purchased, there is no re-qualification needed. You also don't need a new appraisal of the home.

If you are purchasing a home and want to include the FHA EEM, there is no larger down payment required to qualify for the EEM. If you are applying for an FHA 203(k) you can apply for the FHA Energy Efficient Mortgage in conjunction with the 203(k). In these cases the improvements are permitted to take place after the loan's closing date.



Energy Efficient FHA Loans
Incorporate Your Energy Efficiency Improvements into an FHA Loan
FHA ARM | Fixed Rate | Energy Efficient | Graduated Payment | Condos | Growing Equity

The Energy Efficient Mortgage Loan program helps current or potential homeowners significantly lower their monthly utility bills by enabling them to incorporate the cost of adding energy efficient improvements into their new home or existing housing. This FHA program eliminates the need for homeowners who are interested in making their home more energy efficient to take out an additional mortgage loan to cover the cost of the improvements they intend to make to their property. The program is available as part of a FHA insured home purchase or by refinancing your current mortgage loan.

It is our government's goal to make energy efficiency and conservation a way of life. The FHA Energy Efficient Mortgage Loan program contributes to these efforts by providing better housing and creating a way for homeowners to make valuable improvements to their homes at a relatively low cost. The Joint Center for Housing Studies has reported that by considering the amount of monthly savings on utility bills when determining the amount of the mortgage, over 250 thousand more homeowners could feasibly qualify for a home loan.

HOW IT WORKS
Through this and other types of mortgage insurance programs, the lender helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities.

AVAILABLE ASSISTANCE
The Energy Efficient Mortgage Loan program is one of many FHA programs that insures mortgage loans. Borrowers who qualify for FHA's popular Section 203(b) fixed-rate mortgage loan may finance up to 97 percent of their home loan. They are also able to fold their closing costs and the up-front mortgage insurance premium into the total cost of the loan. Energy Efficient Mortgages can also be used with FHA Section 203(k) rehabilitation program; in this case the Energy Efficient Mortgage generally follows the Section 203(k) rehabilitation program's financing guidelines.

ELIGIBLITY
The Energy Efficient Mortgage Loan program is available to anyone who meets the income requirements for FHA's Section 203(b) and is able to make the monthly mortgage payments. The cost involved in adding energy efficient features to the home and an estimate of the energy savings must be determined by a home energy rating system or a qualified energy consultant. Up to $200 of the cost of the energy inspection report may be included in the mortgage. Cooperative units are not eligible. Individual condominium units may be insured if they are not in projects that have been approved by FHA or the Department of Veterans Affairs, or they meet certain Fannie Mae guidelines.

ELIGIBLE ENERGY EFFICIENT ACTIVITIES
Energy Efficient Mortgages can be used to make energy-efficient improvements in one- or two-unit existing and new homes. The improvements can be included in a borrower's mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life. The cost of the improvements that may be eligible for financing as part of the mortgage is either 5 percent of the property's value (not to exceed $8,000) or $4,000, whichever is greater. View the current FHA loan limits.


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FBI Issues Scam Warning for Home Equity Conversion Loans

FBI ISSUES HECM LOAN SCAM WARNING

The FBI has issued a scam warning for those interested in Home Equity Conversion Loans (or HECM loans for short). With increased interest in HECM loans, both conventional loans and FHA guaranteed loans, fraud activity has also increased. FHA HECM loans offer buyers the advantage and safety of stricter controls and licensing requirements for FHA approved lenders, but some scams operate outside the areas FHA rules can protect the borrower.

Some reverse mortgage and HECM scams are engineered to trick the borrower into signing away their equity; other scams are designed to help a scam artist profit by illegally taking the equity built up in a renovated or “flipped” home. When the scam artist approaches a potential victim to initiate a HECM loan scam, they usually dangle an offer of free real estate, a too-good-to-pass-up investment scheme or refinancing deal.

Seniors are frequent targets for scam artists working HECM schemes. FHA HECM loans are designed specifically for those age 62 or older who want an FHA loan product that lets them cash in on the equity built up in their home over the years. The scam sometimes includes an offer of payment on a home the borrower didn’t actually buy, or a no down payment home loan.

There are two basic ways FHA HECM borrowers can protect themselves from reverse mortgage or HECM loan scams. The first is to simply ignore any unsolicited offers connected to FHA HECM loans, reverse mortgages and other loans.

The second is to seek your own FHA-approved lender for any FHA reverse mortgage product. Use the HUD’s Lender List tool to find an approved FHA loan issuer in your area. Don't accept unsolicited help for an FHA HECM loan or reverse mortgage product.

If you suspect you or your family have been targeted by a reverse mortgage scam artist, file a complaint with the Department of Housing and Urban Development by calling 1-8....