What is an FHA Energy Efficient Mortgage?
When you're looking for a home to buy with an FHA loan, one of your biggest concerns is naturally how much you'll need to budget for each month in FHA mortgage payments. Add utility bills and any property maintenance you need to do to the equation and it's clear that any way you can trim down those monthly payments is a good thing.
One way to raise the value of your property and lower your utility bills at the same time is to apply for an FHA Energy Efficient Mortgage or FHA EEM. These mortgages are federally recognized, available in all states, and give you the means to upgrade the home you want to buy to make it more energy efficient. The resulting lower utility bills and increased equity in your home will definitely benefit you over the lifetime of your FHA loan. Depending on how much money you save on your energy bills, you could even change your debt-to-income ratio and qualify for a larger FHA loan.
WHAT DO I NEED TO GET AN EEM?
The first thing you need to qualify for an FHA EEM is a report on the property's energy efficiency. This is called the Home Energy Rating Systems report, and is performed by a professional rater. The property is inspected, everything from the insulation to the appliances. Even the windows get a look. The cost of the home as it exists at the time of inspection is calculated and will be compared to projected energy savings after upgrades.
Once the property's current energy efficiency is determined, the inspector makes recommendations on how the property must be improved. The recommendations include a cost estimate for the upgrades and how much the home could save once those upgrades are properly installed. The recommendation also includes information about how long the upgrades will last until they must be repaired or replaced.
WHAT SHOULD I KNOW ABOUT FHA EEM?
FHA mortgages have loan limits, but if you apply for an FHA EEM, you are entitled to exceed the loan limit if the amount of the EEM money exceeds that limit. FHA Energy Efficient Mortgages are for $4000 or 5% of the property value up to $8000. If you are applying for an EEM after your home has already been purchased, there is no re-qualification needed. You also don't need a new appraisal of the home.
If you are purchasing a home and want to include the FHA EEM, there is no larger down payment required to qualify for the EEM. If you are applying for an FHA 203(k) you can apply for the FHA Energy Efficient Mortgage in conjunction with the 203(k). In these cases the improvements are permitted to take place after the loan's closing date.
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