How to Get a FHA Energy Efficient Mortgage Loan

Published by nora | Filed under Buyer / Seller Tips, Mortgage / Finance, Real Estate

You can get an additional loan to finance your planned energy efficiency upgrade and roll it into your approved mortgage loan through the FHA Energy Efficient Mortgage program. You can borrow 100 percent of the total cost to make your home energy efficient as long as the total does not exceed the EEM loan limit.

First, hire a certified home energy rater to inspect the home you’re buying and determine how it can be made more efficient. The rater will write a Home Energy Rating Systems or HERS report, which provides estimates of the costs of improvements and the expected dollar amount of energy savings. This report will be reviewed by the lender before approving the energy efficiency loan amount applied for.

Before your additional loan amount is approved, the following are computed:

• 5 percent of the appraised value of your home,
• 5 percent of 115 percent of the price median for homes in your area, and
• 5 percent of 150 percent of the Fannie Mae or Freddie Mac conforming loan limit in your area, which is currently $417,000 in most areas.

The least of the results of these three computations will be the maximum limit of your EEM loan. If your estimated cost of improvements is less than the maximum limit, then you’ll get 100 percent of the amount you planned to borrow.

What’s great about the program is you can get the additional loan even if it causes your overall home loan amount to exceed the FHA home loan ceiling in your area. Also, you don’t need to pass another financial qualification test to get approval. If you want to use the EEM loan in addition to your 203(k) loan, you can. You can also use this loan for manufactured homes.

Secondly, in your FHA Connection, check one of the two designations for HERS Improvements. One is for new construction; the other is for existing construction. Include your HERS report in your FHA home loan application binder, behind HUD form 92900 LT, which is titled FHA Loan Underwriting and Transmittal Summary. In your HUD form 92900 LT, check also the box for Energy Efficient Mortgage. In the Underwriter Comments section, the cost of energy efficiency improvements and amount of final loan are written.

To ensure approval, hire a trained and experienced home energy rater who has already helped borrowers obtain EEM loans. This is because the HERS report is required to pass the requirements of the Energy Department and its Building Energy Simulation Test.

All in all, taking the effort to make your home energy-efficient will ultimately pay off through significant savings in many years to come.