The Home Buyer's Korner

Information presented should be used for educational purposes only.

October 31st, 2015

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GREATER LAIE/HALEIWA HAWAII

The Home Buyer’s Korner

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FHA & An Energy Efficient Mortgages

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An FHA Energy Efficient Mortgage, known as an EEM provides a home buyer with funds that are specifically earmarked for energy-related improvements, which have been shown to enhance the energy efficiency of a home and reduce the homeowner’s utility bills.

FHA’s EEM add-on helps home buyers and homeowners save money on utility expenses by allowing them to include the cost of energy efficient upgrades in their FHA loan. FHA’s EEM provides the means for a home buyer to finance qualified energy-saving measures in a single FHA mortgage.

Green Lending – Energy Efficient (EEM)

Under the Energy Efficient Mortgage program add-on, a home buyer is allowed in most cases to finance into the mortgage 100 percent of the cost of eligible energy efficient improvements without an appraisal needed of the energy improvements and without further credit qualification of the home buyer.

The Energy Efficient Mortgage (EEM) helps enhance an FHA-approved home of energy efficiency that can reduce a homeowner’s utility bills by adding energy saving features to a new or existing home. If you currently have an FHA 203K mortgage, you may be also be eligible for FHA’s EEM program, utilizing these two loans together may provide you more funds for improvements.

EEM’s can be used for the purchase of new construction or existing home, or even to refinance a homeowner’s current FHA mortgage. The Federal Housing Administration understands that if a homeowner is required to pay less in utility bills then they would be able to make higher monthly mortgage payments, so qualification for the EEM program is not necessarily required.

Benefits of Green Lending with Energy Efficient Mortgage (EEM)

Taking into consideration of the current environmental and economic circumstances today, there are many benefits to the FHA Energy Efficient Mortgage program, not only does it help homeowners save money, but benefits the environment through reduced emissions and energy usage. The additional benefits include:

  1. Gives home buyer the ability to pay for energy efficient upgrades and home improvements over the life of the loan.
  2. Allows refinancing into a fixed-rate mortgage (rates and payments usually does not increase over time).
  3. Results in higher value.

Requirements and Eligibility for Energy Efficient Mortgage (EEM)

The eligibility requirements for an FHA energy efficient mortgage is the same as any standard FHA loan. To complete the process of an FHA Energy Efficient Mortgage, there are two additional steps:

  1. Home Energy Rating Report

This report must be from either a home energy rating system (HERS) or an energy consultant. The completed report gives a full indication in the improvements that need to be made and will have an estimate of how much you can save each month along with the costs of improvements being less than the present value savings.

  1. Amount Needed

The estimated amount is rolled into the FHA home loan and you do not have to qualify for or make any type of down payment in this amount. After the loan closes, the funds are then placed into an Escrow account by the lender. Once the inspection process is completed and the energy improvements have been installed, the money is then released to the home buyer.

**The FHA’s Energy Efficient Mortgage can be used for the purchase of 1-4 unit new constructions and existing homes.

Questions about FHA’s Energy Efficient Mortgages (EEM)

Can I combine an EEM with my FHA 203k Loan?

Yes, the Energy Efficient Mortgage is used in conjunction with the FHA 203K program. The EEM can be combined with an FHA 203K, providing MORE funds than would be allowed if a home buyer were to solely obtain a FHA 203K Buy It, Fix It mortgage.

Can I refinance with an EEM?

EEM’s can be used for the purchase of new construction or existing home, or to refinance a homeowner’s current mortgage. FHA understands that spending less on utility bills permits a homeowner to pay a higher monthly mortgage amount, so homeowners are not required to qualify for the additional EEM funds.

How does FHA determine if proposed Improvements are eligible?

Energy-efficient upgrades can only be included in the mortgage if the total, combined cost of the improvements is less than the projected dollar amount they will save the homeowner over their useful lifetime.

To estimate the cost savings, an energy consultant will perform an energy inspection and use a Home Energy Rating System (HERS) to prepare a report. The cost of the consultant’s report and any related fees can be included in the mortgage amount.

When does the homeowner get the money?

After the loan closes, the funds are placed in an escrow account by the lender. Once an inspection verifies that the energy improvements have been installed, the money is released to the home owner.

What types of properties are eligible for an EEM?

FHA’s Energy Efficient Mortgage can be used for the purchase or refinance of 1-4 unit new constructions and existing homes.

FHA allows an Energy Efficient Mortgage (EEM) to be combined with a FHA 203K, providing funds beyond FHA loan limits and the buyer’s approved loan amount, up to 5 percent of the value of the property. The EEM proceeds are earmarked for additional improvements that specifically enhance energy efficiency, resulting in lower utility costs for the home. To qualify, an approved Home Energy Rater may be required to perform an audit on the home to assure that energy savings will exceed the cost of improvements over their useful life.

There are some items which may be completed without a Home Energy Rater Audit. *Check with your Lender for a list of these items.

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HAWAII HOME OWNERSHIP TOOLS

Your Home Purchasing or Refinancing & Renovation Tools,

Home Improvements, Home Renovations,

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase.

Here are just a few of the home improvements

you might consider with any Home Renovation loan

Repair or replace a roof

Install, replace or repair gutters and downspouts

Replace, repair or upgrade your HVAC system

Repair or replace plumbing

Install, repair or replace electrical systems

Kitchen remodeling (including the purchase and installation of appliances)

Bathroom remodeling, Full interior painting, Total exterior painting

Repair or replace a septic system and/or well

Disability access (wheelchair ramp, elevator, widen doorways)

Build, repair or replace deck, patio or porch

Basement waterproofing and finishing

Abatement/Stabilization of lead-based paint hazards

Replace old windows, Room additions, Finish an attic

Add a second story to your home

Replace a termite damaged sill plate (a water-damaged sill plate also)

Possible landscaping items such as correction of grading & drainage problems,

tree removal, repair a driveway and sidewalks

FHA 203K

Your Home Purchasing or Refinancing & Renovation Tool

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

FANNIE MAE HOMESTYLE

The Conventional Alternative to FHA 203K

Great for Real Estate Investors and Second Home Renovations

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

USDA RURAL DEVELOPMENT

Up to $10K for Home Improvements, Renovations or a Simple Remodel

Mortgage Loan Officers, Real Estate Agents & General Contractors are ready to assist you

A SIMPLE HOME SHOPPING INSPECTION TOOL

Organizing your home shopping experience affords a wise decision-making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

To print this document click on “Open in New Window” located at the lower right corner;

click on “File”; then click on “Print”. In the center of the screen you will

have the option to “Create A Printable PDF of the Presentation”.

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