November 3, 2015
In our last blog post we discussed a new partnership between the FHA/HUD and the Department of Energy which is allowing eligible borrowers to get access to increased “stretch ratios’ under FHA energy efficient mortgages in 2016.
According to an FHA press release, “FHAs existing EEH policy allows stretch ratios for homes that are built or retrofitted to the 2000 International Energy Conservation Code (IECC). For standard FHA loans, debt-to-income (DTI) ratios are limited to 31 percent (front-end) and 43 percent (back-end).”
How do these ratios “stretch”? According to the press release, “Under FHA policy for the EEH mortgage, these DTI ratios can be increased to 33 percent and 45 percentrespectively. To increase opportunities for homeowners to achieve and benefit from an energy efficient home, FHA is adding a new threshold for existing construction homes based on the Home Energy Score scale.”
The FHA loan stretch ratio rules for existing construction are as follows–please note these ratios do not take effect until 2016:
“For mortgages on existing construction homes, the mortgagee may apply EEH stretch ratios when the property meets either of the following conditions:
1) Homes that currently score a 6 or higher on the Home Energy Score scale; or
2) Homes where documented cost-effective energy improvements, as identified in the Home Energy Score Report, would increase a homes score to a 6 or higher are completed prior to closing, or in association with an FHA program for the escrowing of repairs.”
The press release adds that escrow accounts would be needed, “in accordance with FHAs repair completion escrow requirements associated with the respective program.”
Energy score requirements include fees and expenses, and the press release informs borrowers and lenders that the FHA does not set the fees for the Home Energy Score, “…and they cannot be included in the loan amount to be financed.”
We will examine other aspects of these new FHA energy efficient mortgage policies in future blog posts.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites.
It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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