July 10, 2023
In an older article, we discussed the FHA Energy Efficient Mortgage program, an option for those buying or building a home with an FHA loan. We decided to review the older article and note any program changes along the way.
We originally wrote, “Borrowers who choose the FHA Energy Efficient Mortgage (EEM) option as part of their FHA loan can get up to $8,000 in additional funds added to the loan amount for the express purpose of adding approved energy-efficient upgrades.”
Is that dollar amount still applicable? According to HUD 4000.1, the maximum amount you can borrow in 2023 is as follows:
“The maximum amount of the energy package that can be added to the Base Loan Amount is the lesser of:
- The dollar amount of a cost-effective energy package as determined by the home energy audit; 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.”
According to the FHA loan rules in the old, outdated HUD 4155.1, Chapter Six, “Once the borrower and the property are determined eligible for FHA-insured financing, the lender, using the energy rating report and the EEM worksheet, determines the dollar amount of the cost-effective energy package that may be added to the mortgage amount.”
Is that still true today?
In HUD 4000.1 we learn that in 2023, “The Mortgagee must calculate the dollar amount of a cost-effective energy package as determined by the home energy audit, as shown in Energy Package. The EEM Calculator…will perform the calculation of Maximum Financeable Energy Package.
The EEM Calculator uses data entered for the Mortgage to calculate the maximum energy package.
EEM upgrades, once installed, can go a long way toward improving the efficiency of a home. But what happens once the borrower decides this option is the right one to take?
One part of the process involves determining the cost of energy improvements and estimating the savings of those improvements.
Borrowers may be required to work with an energy consultant. From HUD 4000.1, in 2023, “The Borrower must obtain a home energy assessment. The purpose of the energy assessment under the EEM program is to identify opportunities for improving the energy efficiency of the home and their cost-effectiveness.”
HUD 4000.1 adds that any such assessment “must be conducted by a qualified energy rater, assessor, or auditor using whole-home assessment standards, protocols and procedure.”
The rater must be qualified to conduct inspections and tests for upgrading the home. on the property. The home energy rater is required to prepare a home energy rating report, and provides copies to both the borrower and the lender.
The loan proceeds with or without the EEM paperwork and once the EEM requirements are fulfilled the Energy Efficient Mortgage is added to the loan. There is no need to delay the rest of the loan application.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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