Energy Efficient Mortgage
HUD Overview of EEMs
Summary:
The Energy Efficient Mortgages 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:
This program seeks to help achieve national energy-efficiency goals (and
reduce pollution) and provide better housing for people who might not
otherwise be able to afford it. By considering the savings on monthly utility
bills when determining how large a mortgage the household can afford, as many
as 250,000 more new homebuyers could qualify per year, according to a 1986
study by the Joint Center for Housing Studies. Although EEMs have been
available in some States since 1980, they have been little understood or
marketed. With EEMs, borrowers do not need to get a separate, costly loan for
energy improvements when buying an existing home.
Type of
Assistance:
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 97 percent financing,
and are able to fold closing costs and the up-front 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. For energy-efficient housing rehabilitation activities
that do not also require buying or refinancing the property, borrowers may
also consider HUD's Title
I Home Improvement Loan program.
Eligible
Grantees:
FHA-approved
lending institutions-which include many banks, savings and loan associations,
and mortgage companies-can make loans covered by EEM insurance.
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. Up to $200 of the cost of an energy
inspection report may be included in the mortgage. Cooperative units are not
eligible; individual condominium units may be insured if they are in projects
that have been approved by FHA or the Department of Veterans Affairs, or meet
certain Fannie Mae guidelines.
EEM can also be used with FHA's
Section 203(h) program for mortgages made to victims of presidentially
declared disasters. The mortgage must comply with both Section 203(h)
requirements, as well as those for EEM. However, the program is limited to
one-unit detached houses.
Eligible
Activities:
EEM can be used to
make energy-efficient improvements in one- or two-unit 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. The cost of the improvements that may be eligible
for financing as part of the mortgage is either 5 percent of the property's
value (not to exceed $8,000) or $4,000--whichever is greater. The maximum
mortgage limit for a single-family home is $160,950, plus the cost of the
eligible energy-efficient improvements. (Limits may be lower in some areas of
the country.) .
Application:
Applications must
be submitted to the local HUD Field Office through an FHA-approved lending
institution. HUD's homepage offers a searchable
list of approved lenders.
Funding
Status:
In FY 1996, 3,500
loans were endorsed. In FY 1997, 4,700 loans were endorsed.
Technical
Guidance:
EEM is authorized
under Section 513 of the Housing and Community Development Act of 1992.
Program regulations are in Mortgage Credit Analysis for Mortgage Insurance on
One-to-Four-Family Properties (HUD Handbook 4155.1), paragraph 2-20. This and
other FHA programs are administered by the Office of Single-Family Housing in
HUD's Office of Housing-Federal Housing Administration. Contact the Director
of Single-Family Housing at the nearest HUD Field Office.
For More
Information:
The Department
of Energy (DOE) and HUD established a Joint Initiative on Energy
Efficiency in Housing. To learn more about this collaborative effort, see
DOE/HUD Initiative on Energy Efficiency in Housing: A Federal Partnership,
Program Summary Report, which is available from HUD
USER (1-800-483-2209).
Fifteen States are
expanding EEM so that it further increases the purchasing power of homebuyers
by allowing appraisers to adjust the factors in a home's energy rating and the
value of energy savings. Buyers can find links to these state programs and to
informed lenders at the RESNET website www.natresnet.org.
This site also has information about the Home Energy Rating System and the
Model Energy Code, two methods of rating homes to determine whether they
qualify for EEM.
* Taken from HUD web site
at: www.hud.gov/progdesc/energy-r.html |
