When purchasing or refinancing a home, an FHA Energy Efficient Mortgage (EEM) allows borrowers to include the cost of qualifying energy-efficient improvements within their primary FHA loan. This program helps homeowners reduce future utility bills by funding upgrades such as better insulation, efficient heating and cooling systems, and energy-efficient windows.
How Does an FHA Energy Efficient Mortgage Work?
- Qualify for a Standard FHA Loan: Borrowers must first meet credit, income, and debt-to-income criteria for an FHA-insured mortgage with an FHA-authorized lender.
- Conduct a Home Energy Assessment: A certified home energy auditor inspects the property and recommends specific cost-effective upgrades.
- Determine Financing Limits: The lender calculates the maximum loan amount to cover both the home purchase or refinance plus the energy improvements. Typically, the upgrade costs added are limited to the lesser of 5% of the home’s value, 115% of the area’s median home price, or 150% of the national conforming loan limit.
- Loan Closing: The total loan includes the home price and approved energy upgrade costs.
- Complete Improvements: Funds for energy-saving work are held in escrow and released upon project completion and inspection.
Eligible Upgrades Include:
- Adding or improving insulation and air sealing
- Installing high-efficiency furnaces, heat pumps, or air conditioners
- Replacing old windows and doors with energy-efficient models
- Upgrading water heaters to energy-saving options
- Installing approved renewable energy systems like solar panels
- Adding ENERGY STAR® certified appliances
Who Can Use an FHA EEM?
Eligibility mirrors that of a standard FHA loan: the property must be the borrower’s primary residence, the borrower must qualify for the loan, and the energy improvements must be cost-effective as verified by a professional energy auditor. This can apply to both homebuyers and those refinancing.
Important Considerations
- The EEM is not a separate loan; energy improvement costs are folded into the overall FHA loan.
- The anticipated utility savings should justify the additional monthly mortgage payment.
- Projects require an official home energy audit and follow-up inspections.
FAQs
Can I combine an FHA EEM with other FHA renovation loans?
While the EEM focuses only on energy upgrades, it can sometimes complement an FHA 203(k) loan, which covers broader home repairs and remodeling.
Is the FHA EEM program available nationwide?
Yes, the FHA Energy Efficient Mortgage program is available across the U.S. through approved lenders.
To learn more about FHA loans and energy-efficient programs, visit the U.S. Department of Housing and Urban Development (HUD).
For related topics on refinancing and borrower equity, see our articles on Refinance Appraisal and Borrower Equity at FinHelp.io.
