Required by law to save you money

Two varieties of the FHA EEM loan exist:

• EEM Home Purchase Loan
• EEM Streamline Refinance Loan (for those who already have a home with an FHA mortgage)

The basic concept behind the EEM is that the energy efficient upgrades made to a home will save the homeowner more than the increased monthly payment due to a slightly higher mortgage amount (as the cost of improvements are added to your principal balance).  Example: You purchase a $150,000 home with 3.5% down and plan to do $5000 in energy efficient upgrades which were determined by a HERS rating to save you $75 per month in energy costs.

• Loan balance without improvements:  $148,007 (includes MIP of 2.25%)
• Monthly payment (P&I) 5% interest rate on a 30 year loan:  $794.54

Here is the example with the improvements:

• Loan balance with improvements: $153,007 (includes MIP of 2.25%)
• Monthly payment (P&I) 5% interest rate on a 30 year loan: $821.37
• Now subtract the $75 utilities savings: $746.37
• That’s a net savings of $48.17 per month

Note that by law, an energy efficient mortgage can be allowed only when it is proven by a HERS report that the borrower will save money each month.

What are the Benefits of an Energy Efficient Mortgage?

• Overall net savings on your housing payments including utilities
• An opportunity to upgrade old appliances, financing them into your mortgage
• With current tax credits and rebates, the ability to receive hundreds or even thousands of dollars after your energy upgrade allowing you to do additional repairs (whether they be energy efficient or just desired upgrades)
• Reduced emissions
• Reduced dependence on foreign energy sources

EEM Requirements and Eligibility

An EEM works just as any other FHA mortgage, however, two additional steps are required:

1. A home energy rating report from a home energy rating system (HERS) is completed.  The report details the improvements to be made and estimates the monthly savings from those improvements.
2. The amount shown on the report as needed for those improvements is rolled into the FHA loan.  Amazingly, you do not need to qualify for the additional payments nor do you need to make a down payment on that portion of the loan.  100% of the improvements are financed.  Because your utility payment is required to go down by at least the amount of the increased mortgage payment, the underwriter does not require that you qualify for this portion of the loan.

Keep in mind that the energy efficient improvements are made after closing through an escrow account held by the lender, much like a renovation or 203k loan.  This guarantees that the funds will be available to make the repairs.

How the Loan Works

Buyers can take out an EEM loan as a 15- or 30-year fixed-rate mortgage or as an Adjustable Rate Mortgage (ARM) from an FHA-approved lender. FHA requires that a 3.5% cash investment be made on the property, based on the sale price. The total amount of the mortgage is based on the value of the home plus the projected cost of energy efficient improvements.

Because the home will be more energy efficient, owners will save on utility costs and, therefore, be able to devote more income to the monthly mortgage payment. The final loan amount can exceed the maximum FHA mortgage limit by the amount of the energy efficient improvements. Buyers may finance into the mortgage the cost of the energy efficient improvements determined to be “cost-effective,” which means that the total cost of the improvements, including any maintenance costs, is less than the total present value of the energy saved over the useful life of the energy improvement.

The maximum amount of the portion of the EEM for energy improvements is 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

A Home Energy Rating System provider will complete a measurement of the home’s energy efficiency and provide a report listing recommended cost effective energy improvements, an estimated cost of the energy improvements, and estimated energy savings to the buyers and their lender. Buyers may finance the cost of the energy inspection report as part of the mortgage if the entire package, including these fees, is cost-effective. The amount of the energy efficient improvements is placed in an escrow account and released after an inspection verifies that the improvements are installed and the energy savings will be achieved. Buyers can begin making energy improvements after the loan’s closing, and the work must be completed within 90 days.

Eligibility:

Almost anyone who has satisfactory credit, enough cash to close the loan, and sufficient steady income to make monthly mortgage payments can be approved for a FHA-insured EEM loan. There is no upper age limit and no certain income level required. The following types of properties are eligible under the EEM program, including new construction or existing one- to four-unit single-family residences:

• Detached houses
• Townhouses
• Condominiums (certain restrictions apply)

Examples of improvements that are made under an EEM loan:

• Air sealing
• Duct sealing
• Replacing a heating/cooling system
• Replacing a water heater
• Lighting retro-fits
• Fixing or replacing a chimney
• Insulating an attic, crawl space, exterior walls, and/or pipes and air duct
• Replacing doors or windows
• Installing active and passive solar technologies
• Installing a programmable thermostat

• 50% reimbursement of assessment fees

Table of Contents

Improvement Work Rebates:

What to Expect from Home Performance with ENERGY STAR

A drafty home, rooms that are too hot or too cold, and high energy bills are all common problems for homeowners.   Rather than focusing on individual components, such as single-paned windows, an old air conditioning system, or leaky ductwork, we employ an integrated “whole-house” approach.  One of our BPI Certified Building Analyst Professionals will use advanced computerized diagnostic equipment to assess how improvements to any combination or all of these components can work together to obtain better performance. A quality installation of a new heating or air conditioning system, installing replacement windows, or adding more insulation may fix part of the problem, but the way to better results is through analyzing each house as a total system.
This can result in:

• Substantially lower utility bills
• Added home value
• Consistent temperatures across rooms
• Better ventilation and humidity control
• Fewer drafts
• Improved indoor air quality

While the EEM product has been around for many years, it has been grossly under-utilized.  This is mainly because buyers and lenders have been unaware of the many benefits or have simply been unaware that the product was availbable.  Additionally, recent government incentives have made the products extremely attractive to new home buyers as well as existing owners looking to upgrade their appliances to reduce not only their carbon footprint, but also their monthly expenses.

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