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How to Use an
FHA Energy Efficient Mortgage

Understanding how to use the FHA energy efficient mortgage to make your home more energy efficient is explained below. 

This type of mortgage is one option that you have as a first time home buyer, and it is important to assess your range of choices in this area to arrive at the best loan deal. For all practical purposes, we will use the acronym that HUD uses for this product which is EEM.

If you think you are ready, you will need a loan officer who is familiar with this type of loan product.

Want to see if you qualify for a mortgage? Click here to find out.

An FHA energy efficient mortgage (EEM) is designed to allow home buyers to save some money by integrating features into their homes that are energy efficient.

The thought process behind the program, which was fully instigated in 1995, was that household utility bills such as gas and electric are continuous monthly expenses that reduce the amount that the homeowner has available to spend on a mortgage.

So, for example, if a homeowner spends $800 a month on a mortgage, plus an additional $200 a month in utility bills, then that is expenditures every month of $1000.

If the cost of the utility bills could be lowered to only a $100 a month by instigating energy efficiency measures in a home, then in effect that would free up an extra $100 that could have been spent on paying an increased mortgage, and so energy efficient mortgages are designed to pay for the home improvements that allow that to happen in their first time mortgage.

How the FHA Energy Efficient Mortgage Works

fha energy efficient mortgage

The way that the program works is that you would visit a home that you were thinking of buying. Then you would have to get a Home Energy Rating System (HERS) Report by an approved consultant. The inspector would evaluate the house based on energy saving factors such as whether it had double glazing on the windows, if the attic had insulation, and how energy efficient all the appliances and mechanical systems are in the house.

The report would also include how much the inspector rated the house at when inspected, and also how much potential savings could be made if all the recommendations in the inspectors report were followed.

There are many useful aspects to this as a first time home buyer. First it gives a much clearer analysis of how a home could potentially be improved, and second it offers a way of actually paying to get the work carried out, because with energy efficient mortgages (EEM) you can get up to an extra $8000 to carry out the work. So in effect you can get not only the cost of the mortgage, but the extra EEM money as well. Wouldn't that be cool to have with your first time mortgage?

Basic FHA Government Home Loan Qualifications

  • You must meet the standard credit and income qualifications for the FHA 203(b) home loan. In short it has to do with meeting the minimum 3.5% down payment requirement, it can only be a 1-4 unit home, the cost of the improvements must be less than the savings over the useful life of the improvements made to achieve this energy savings.
  • Also the house must fall within the mortgage limits for the area you plan to purchase in.

There are other requirements to meet, but these are the major ones. I'm sure you can see from this webpage that this is a really cool program for the first time home buyer.

Here are some other mortgages you may want to consider....

Perhaps you want to make some repairs but they are not related to being energy efficient, consider this FHA program.

Would a zero down program be what you are looking for? Be sure read about what zero down options are available.

You probably still have many more questions. You can ask any questions just pick my brain and I will try to help you.

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