September 18, 2017
Can I add energy-efficient upgrades to an FHA One-Time Close Construction Loan? FHA loan rules governing the FHA Energy Efficient Mortgage add-on to other loans such as an FHA One-Time Close new construction loan are found in HUD 4000.1. There we learn the following on page 400:
“The Energy Efficient Mortgage (EEM) program allows the Mortgagee to offer financing for cost-effective energy efficient improvements to an existing Property at the time of purchase or refinancing, or for upgrades above the established residential building code for New Construction.”
We know from that reading of FHA loan rules that new construction loans (including One-Time Close mortgages) do qualify for FHA EEMs, which allow the borrower additional funds for an “energy package” defined as:
“…the set of improvements agreed to by the Borrower based on recommendations and analysis performed by a qualified home energy rater. The improvements can include energy-saving equipment, and active and passive solar and wind technologies. The energy package can include materials, labor, inspections, and the home energy assessment by a qualified energy rater. If the Borrower desires, labor may include the cost of an EEM Facilitator (general contractor)”.
Like most FHA loan rules, there are certain restrictions and requirements. FHA EEMs are restricted to the following property types:
-new construction properties (one- to four-units);
-existing construction properties (one- to four-units);
-condominiums (one unit);
-manufactured housing.
“New construction” may be a traditional two-part construction loan (there is a loan for the construction and a loan for the mortgage) or an FHA One-Time Close new construction loan which features only one closing date for the loan, making it easier on the borrower since only one loan is applied for and approved.
FHA Energy Efficient Mortgages can also be added to refinance loans, so if a borrower applied for a new construction loan and chose not to include an EEM as part of that loan, when it comes time to refinance the EEM option is still available.
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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