The FHA Energy Efficient Mortgage Loan

• mortgage amount includes the cost of the energy efficient improvements, in addition to the usual mortgage amount normally permitted
• FHA maximum loan limit for the area may be exceeded by the cost of the energy efficient improvements
• energy efficient improvements must be cost effective in order to be included into the mortgage, and
• amount of the cost effective energy package is added to the approved base loan amount before adding any upfront mortgage insurance premium (UFMIP).

When it comes to FHA loans on existing homes, “energy-related weatherization items may be combined with the EEM, where the maximum dollar amount allowed under an EEM does not cover the cost of the entire energy package. The weatherization amount would be the cost of the improvements not covered by the EEM amount. With a 203(k), the excess improvements would be included in the rehabilitation work.”

One very important aspect of FHA EEM loans is that while the “energy package may be financed into the loan, the borrower does not need to qualify with the additional financing or provide additional downpayment” according to Chapter Six.

That answers a common question some borrowers have about FHA EEMs. Another important question to answer–with the FHA allow the loan to go through for existing construction houses before the improvements are installed? Chapter Six says, “FHA will endorse a mortgage for an existing property before the energy- efficient improvements are installed, provided that the lender establishes an escrow account and deposits funds into the account to pay for the energy- efficient improvements.”

However, there is a time constraint to be aware of. Chapter Six adds that of the energy efficient upgrades are not completed “within 90 days, or 180 days for a 203(k) mortgage, the lender must apply the funds held in escrow to a prepayment of the mortgage principal.”

Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.