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Energy Efficient Mortgage
Program : Purpose l Type
of Mortgage l How to Get an EEM l Eligible
Customers l Eligible Activities l Eligibility Requirements
Energy Efficient Mortgage Home Owner Guide
Energy Efficient
Mortgage Program
FHA's Energy Efficient Mortgage program (EEM) helps homebuyers
or homeowners save money on utility bills by enabling them to
finance the cost of adding energy efficiency features to new
or existing housing as part of their FHA insured home purchase
or refinancing mortgage.
Purpose
In 1992, Congress mandated a pilot demonstration of Energy Efficient
Mortgages (EEMs) in five states. In 1995, the pilot was expanded
as a national program.
EEMs recognize that reduced utility expenses can permit a homeowner
to pay a higher mortgage to cover the cost of the energy improvements
on top of the approved mortgage. FHA EEMs provide mortgage insurance
for a person to purchase or refinance a principal residence and
incorporate the cost of energy efficient improvements into the
mortgage. The borrower does not have to qualify for the additional
money and does not make a down payment on it. The mortgage loan
is funded by a lending institution, such as a mortgage company,
bank, or savings and loan association, and the mortgage is insured
by HUD. FHA insures loans. FHA does not provide loans.
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Type of Mortgage:
EEM is one of many FHA programs that insure mortgage loans--and
thus encourage lenders to make mortgage credit available to borrowers
who would not otherwise qualify for conventional loans on affordable
terms (such as first time homebuyers) and to residents of disadvantaged
neighborhoods (where mortgages may be hard to get). Borrowers
who obtain FHA's popular Section 203(b) Mortgage Insurance for
one to four family homes are eligible for approximately 96.5
percent financing, and are able to fold closing costs and the
upfront mortgage insurance premium into the mortgage. The borrower
must also pay an annual premium.
EEM can also be used with the FHA Section 203(k) rehabilitation
program and generally follows that program's financing guidelines.
How to Get an EEM:
To apply for an FHA insured energy efficient mortgage, contact
Theresa Springer.
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Eligible Customers:
All persons who meet the income requirements for FHA's standard
Section 203(b) insurance and can make the monthly mortgage payments
are eligible to apply. The cost of the energy improvements and
estimate of the energy savings must be determined by a home energy
rating system (HERS) or an energy consultant. The cost of an
energy inspection report and related fees may be included in
the mortgage. Cooperative units are not eligible.
Eligible Activities:
EEM can be used to make energy efficient improvements in one
to four existing and new homes. The improvements can be included
in a borrower's mortgage only if their total cost is less than
the total dollar value of the energy that will be saved during
their useful life. Other eligibility requirements may be found
in the Homeowner's Guide.
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Eligibility Requirements
- The borrower is eligible for a maximum FHA insured loan,
using standard underwriting procedures. The borrower must make
a 3.5 percent down payment. This 3.5 percent down payment is
based on the sales price or appraised value. Any upfront mortgage
insurance premium can be financed as part of the mortgage.
- Eligible properties are one to four unit existing and new
construction. EEMs may be added to some other loan types, including
streamline refinances.
- The cost of the energy efficient improvements that may be
eligible for financing into the mortgage is the lesser of A
or B as follows:
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A. The dollar amount of cost-effective energy
improvements, plus cost of report and inspections, or
B. The lesser of 5% of:
- The value of the property, or
- 115% of the median area price of a single
family dwelling, or
- 150% of the conforming Freddie Mac limit.
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- 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.
- The cost of the energy improvements and estimate of the
energy savings must be determined by a home energy rating report
that is prepared by an energy consultant using a Home Energy
Rating System (HERS). The cost of the energy rating report
and inspections may be financed as part of the cost effective
energy package.
- The energy improvements are installed after the loan closes.
The lender will place the money in an escrow account. The money
will be released to the borrower after an inspection verifies
that the improvements are installed and the energy savings
will be achieved.
- The maximum mortgage limit for a single family unit depends
on its location, and it is adjusted annually. The cost of the
eligible energy efficient improvements is added to the mortgage
amount. The final loan amount can exceed the maximum mortgage
limit by the amount of the energy efficient improvements.
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Energy Efficient Mortgage Home Owner Guide
THE ENERGY EFFICIENT MORTGAGE means comfort and savings. When
you are buying, selling, refinancing, or remodeling your home,
you can increase your comfort and actually save money by using
the Energy Efficient Mortgage (EEM). It is easy to use, federally
recognized, and can be applied to most home mortgages. EEMs provide
the borrower with special benefits when purchasing a home that
is energy efficient, or can be made efficient through the installation
of energy-saving improvements.
Home owners with lower utility bills have more money in their
pocket each month. They can afford to allocate a larger portion
of their income to housing expenses. If you have more cash, why
not buy a better, more comfortable home? There are two options
with the Energy Efficient Mortgage.
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The TWO SIDES of the EEM COIN
Finance Energy Improvements!
- Cost-effective energy-saving measures may be financed as
part of the mortgage!
- Make an older, less efficient home more comfortable and
affordable!
Increase Your Buying Power!
- Stretch debt-to-income qualifying ratios on loans for energy-efficient
homes!
- Qualify for a larger loan amount! Buy a better, more energy
efficient home!
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WHO BENEFITS from the ENERGY EFFICIENT MORTGAGE?
Buyers:
- Qualify for a larger loan on a better home!
- Get a more comfortable home NOW.
- Save money every month from Day One.
- Increase the potential resale value of your home.
Sellers:
- Sell your home more quickly.
- Make your house affordable to more people.
- Attract attention in a competitive market.
Remodelers/Refinancers:
- Get all the EEM benefits without moving.
- Make improvements which will actually save you money.
- Increase the potential resale value of your home.
Pay for energy improvements easily, through your mortgage. I
can increase your loan to cover energy improvement costs. Monthly
mortgage payments increase slightly, but you actually save money
because your energy bills will be lower!
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HERS, or Home Energy Rating Systems
A HERS report is similar to a miles-per-gallon rating on a car.
HERS are programs which provide an evaluation of an individual
home’s energy-efficiency. A HERS report is prepared by
a trained Energy Rater. Factors such as insulation, appliance
efficiencies, window types, local climate, and utility rates
are used to rate the home and calculate energy costs.
A HERS Report Includes:
- Overall Rating Index of the house as it is.
- Recommended cost-effective energy upgrades.
- Estimates of the cost, annual savings, and useful life of
upgrades.
- Improved Rating Index after the installation of recommended
upgrades.
- Estimated annual total energy cost for the existing home
before and after upgrades.
A Rating Index is between 1 and 100. A lower index indicates
greater efficiency. Cost-effective upgrades are those which will
save more money through energy savings than they cost to install.
A HERS rating usually costs between $300 and $800. This could
be paid for by the buyer, seller, lender, or real estate agent.
Sometimes the cost of the rating may be financed as part of the
mortgage. No matter how the rating is paid for, it is a very
good investment because an EEM could save you or your buyer hundreds
of dollars each year.
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WHICH BUYERS and HOMES ARE ELIGIBLE?
All buyers who qualify for a home loan qualify for the EEM.
The EEM is intended to give the buyer additional benefits on
top of their usual mortgage deal. The lender will use the energy
efficiency of the house, as determined by a HERS rating, to determine
what these benefits will be.
Energy Efficient Mortgages can be used on most homes. Availability
is not limited by location, home price or utility company. Your
lender will help you choose which loan type is best for you.
Get an EEM on:
- Older homes qualifying for upgrades
- New or old homes not requiring upgrades
- New construction
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SOME THINGS to KEEP in MIND
It is best to have the HERS Rating done as early in the loan
process as possible. This way, the Rating can be performed while
other aspects of the loan are being processed. Closing the loan
should not be delayed. You may get a larger tax deduction with
the EEM because the interest on mortgage payments is tax deductible.
This can save you more money than paying for energy upgrades
with a credit card, bank loan, or cash, none of which are usually
tax deductible.
Each house is as unique as its owner. Benefits derived from
the EEM will vary from one house to another, and the benefits
in the examples in this book may not apply in all cases. Your
lender will be your best source of information on your own EEM
benefits.
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Experience extraordinary...
Call Theresa Springer today at 360-210-7984 to
see the difference that working with an experienced home
loan professional can make for you. |
