FHA Programs

The Energy Efficient Mortgages Program (EEM) helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy-efficiency features to new or existing housing as part of their FHA-insured home purchase or refinancing mortgage.

This program seeks to help achieve national energy-efficiency goals (and reduce pollution) and provide better housing for people who might not otherwise be able to afford it. By considering the savings on monthly utility bills when determining how large a mortgage the household can afford, as many as 250,000 more new homebuyers could qualify per year, according to a 1986 study by the Joint Center for Housing Studies. Although EEMs have been available in some States since 1980, they have been little understood or marketed. With EEMs, borrowers do not need to get a separate, costly loan for energy improvements when buying an existing home.

Type of Assistance:

EEM is one of many FHA programs that insure mortgage loans--and thus encourage lenders to make mortgage credit available to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first time homebuyers) and to residents of disadvantaged neighborhoods (where mortgages may be hard to get). Borrowers who obtain FHA's popular Section 203(b) Mortgage Insurance for One- to Four-Family Homes are eligible for approximately 97 percent financing, and are able to fold closing costs and the up-front mortgage insurance premium into the mortgage. The borrower must also pay an annual premium.

EEM can also be used with the FHA Section 203(k) rehabilitation program and generally follows that program's financing guidelines.

Eligible Customers:

All persons who meet the income requirements for FHA's standard Section 203(b) insurance and can make the monthly mortgage payments are eligible to apply. The cost of the energy improvements and estimate of the energy savings must be determined by a home energy rating system (HERS) or an energy consultant. Up to $200 of the cost of an energy inspection report may be included in the mortgage. Cooperative units are not eligible; individual condominium units may be insured if they are in projects that have been approved by FHA or the Department of Veterans Affairs, or meet certain Fannie Mae guidelines.

Eligible Activities:

EEM can be used to make energy-efficient improvements in one- or two-unit existing and new homes. The improvements can be included in a borrower's mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life. The cost of the improvements that may be eligible for financing as part of the HUD mortgage is either 5 percent of the property's value (not to exceed $8,000) or $4,000 -- whichever is greater. See the current FHA loan limits.

FHA LOAN QUESTION # 1   [ -more FHA questions- ]

Q: How does purchasing a home compare with renting?

A: The two don't really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing. Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that's an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep- which can be substantial. But given the freedom, stability, and security of owning your own home, they are worth it.