December 14, 2011
Borrowers new to the FHA insured loan program should know about the FHA loan option called an Energy-Efficient Mortgage or EEM. An FHA EEM is intended to add a set amount to the FHA home loan in order to finance upgrades or improvements to the home that result in a more energy efficient property, which saves money over the long term.
According to FHA loan rules, eligible properties for an EEM loan include, “New and existing one to four unit properties, including one unit condominiums and manufactured housing properties”.
EEM loans are for new purchase transactions or refinancing, including the FHA 203(k) Rehabilitation Loan, FHA 203(h) loans for victims of natural disasters and standard FHA 203(b) loans. Borrowers who are purchasing multi-unit property should know an FHA EEM is calculated for improvements over the entire property and not a single housing unit.
The energy-efficient mortgage has a few additional requirements from a standard home loan or FHA refinancing loan. According to the FHA official site, “To be eligible for inclusion in the mortgage, the energy efficient improvements must be cost effective, meaning that the total cost of the improvements is less than the total present value of the energy saved over the useful life of the energy improvement.”
This rule clearly puts the burden of proof on the loan applicant to provide information that would support any proposed improvements being cost-effective and efficient. How does the borrower get this information in writing in a way acceptable to the FHA and lender? The FHA rules spell out the procedure at http://portal.hud.gov/
The rules allow the borrower to finance the cost of this energy rating report. “The cost of the energy rating report and inspections may be financed as part of the cost effective energy package.”
We’ll examine how the FHA EEM program works from a lending standpoint and how the loan is calculated in another blog post.
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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