Energy Efficient Mortgages

An Energy Efficient Mortgage (EEM) is a mortgage that credits a home's energy efficiency in the mortgage itself.  EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.  The EEM will not provide enough financing to upgrade the house, and it does not have to.  After close, separate financing will be used, e.g. Property Assessed Clean Energy (PACE).

To get an EEM, a borrower has to have a home energy audit on the home they are buying before financing will be approved.  This audit verifies the current efficiency of the house and hoew much it'll take to make it energy efficient.

EEMs are typically used to purchase a new home.  The term EEM is commonly used to refer to all types of energy mortgages including Energy Improvement Mortgages (EIMs), which are used to purchase existing homes that will have energy efficiency improvements made to them.  EIMs allow borrowers to include the cost of energy-efficiency improvements to an existing home in the mortgage without increasing the down payment.

Conventional Energy Efficient Mortgages

Conventional EEMs increase the purchasing power of buying an energy efficient home by allowing the lender to increase the borrower's income by a dollar amount equal to the estimated energy savings.  While Freddie Mac does not offer EEMS, they do allow underwriting flexibilities for energy efficient improvements with all of their offerings.

FHA Energy Efficient Mortgages

The mortgage loan amount for an FHA EEM can be increased by the cost of effective energy improvements.  The maximum amount of the portion of the EEM for energy efficient 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.

No additional down payment is required, and the FHA loan limits won't interfere with the process of obtaining the EEM.  FHA EEMs are available for site-built as well as for manufactured homes.  Applications for an FHA EEM may be submitted to the local HUD Field Office through an FHA-approved lending institution. HUD has a searchable list of approved lenders.  Information about the FHA EEM can be found on FHA's web site.  Additional information is available from HUD's Office of Single Family Housing by calling (800) 569-4287.  There is also a fact sheet about FHA's EEM (PDF, 70KB).  The Systems Building Research Alliance (link is external) has information about FHA EEMs for ENERGY STAR certified manufactured homes.

VA Energy Efficient Mortgages

The Veteran's Administration (VA) EEM is available to qualified military personnel, reservists and veterans for energy improvements when purchasing an existing home.  The VA EEM caps energy improvements at $3,000–$6,000.  Borrowers should ask their lender about a VA EEM at the beginning of the lending process.  More information about VA EEMs can be obtained from the website for the U.S. Department of Veteran's Affairs or by calling (800) 827-1000.

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