An Energy Efficient Mortgage is a mortgage that homebuyers or homeowners can apply for. The funds that are provided with the loan are used by the homeowner or buyer to complete work on the home that will make it more energy efficient. The Federal Housing Administration (FHA) administers this program and is part of the U.S. Department of Housing and Urban Development (HUD). Homeowners and homebuyers who take advantage of this program can weatherize their homes or purchase new and more efficient heating and cooling systems for their homes.
The Energy Efficient Mortgage Program (EEM) is not offered to every home buyer or owner throughout the country. There are eligibility guidelines that must be met for a resident to be provided with this type of mortgage. Additionally, monthly mortgage payments must be made and the program does not provide free assistance for these homeowners. Before attempting to attain an EEM mortgage, a homeowner or potential home buyer should first review how the program works and the eligibility requirements. To find out more about attaining an FHA energy efficient mortgage through this program, including the application process, review the following information.
What is an Energy Efficient Mortgage?
Through an FHA EEM, you can take out a mortgage on the home that you own that can strictly be used for weatherization or the completion of other tasks to increase energy efficiency. The FHA has developed this program to combat the high utility costs that many homeowners struggle to pay each month. By providing you with a mortgage to make these energy improvements on your home, you can attain lower monthly utility bills, making it financially easier for you to continue paying both your home mortgage and the energy efficiency mortgage.
If you are approved for an Energy Efficient Mortgage on your home, you can hire contractors and workers to complete the previously agreed upon work on your property. The work will focus on heating and cooling your home more effectively throughout the year. There are many ways you can improve your home to become more energy efficient through the program, including:
- Fixing or replacing your chimney.
- Replacing or resealing the home’s door and windows.
- Installing solar powered systems.
- Replacing the furnace.
- Repairing or replacing air conditioning units.
- Installing additional insulation in the attic or on the pipes.
When the EEM work is completed, you should experience lower heating and cooling costs. Your home improvements can help you keep your monthly bills and expenses low and affordable. However, keep in mind, you are still responsible for paying the monthly mortgage payments. This type of loan should be treated similarly to an FHA loan that is offered when you purchase a home. It is important to continue making these monthly payments until you have completely paid off the loan.
What are the requirements for the Energy Efficient Mortgage Program?
Before you apply for an Energy Efficient Mortgage, you should review the eligibility qualifications. Not every homeowner qualifies for this type of mortgage and there are certain requirements that must be met before a lender will agree to offer you this loan. To qualify for this mortgage, you must have:
- A credit score that meets the minimum loan requirements.
- The minimum amount of cash required to close the loan.
- Proof of a steady monthly income.
- A home that meets the loan requirements.
Additionally, to meet Energy Efficient Mortgage eligibility requirements, you must thoroughly complete the application process with a lender. Since this is an FHA-insured mortgage, most of the application process is similar to applying for an FHA loan for a home purchase.
To find out about other energy assistance programs, download our guide to LIHEAP.
How much does an EEM mortgage cost?
The FHA EEM mortgage application process is similar to a regular FHA mortgage application that you would take out on a new home purchase. Therefore, the terms and conditions of the loan will be dependent upon your specific situation. Generally, the cost of your monthly payment for the loan will depend upon your credit score, the amount of down payment you can provide, the current interest rates and the amount of the loan.
The EEM mortgage loan amount that is offered to you is determined after energy efficient professionals analyze your home. These home energy efficiency experts will generally only recommend home improvements that will be cost effective and will be sure to increase your home’s efficiency. The goal of the inspection is to find ways to reduce your energy costs on a monthly basis.
These expert recommendations and estimates are taken into consideration when a loan officer organizes the terms of the loan. The amount of the loan will usually only include the estimated costs of completing the work to make your home more energy efficient.
Keep in mind, when you apply for an EEM mortgage, there is a limit to the amount of money you can be provided to complete the work on your home. The loan officer will calculate your maximum loan amount and compare it to the work that was recommended by the energy experts who assessed your home. If the loan does not cover all the work and you want to move forward with all the home improvements that were recommended, you may be responsible for paying the difference when you hire contractors to complete the projects.
How do I apply for an FHA Energy Efficient Mortgage?
The process to apply for an Energy Efficient Mortgage is similar to applying for an FHA loan for a home purchase. You must contact an FHA-approved lender first to review your eligibility for the program. The lender will ask you about your home, the equity you currently have in the property, your monthly income and household finances.
Before you can take advantage of the EEM program, your home will be subject to an inspection by home energy efficiency experts. These professionals will analyze your home to suggest certain projects that can be completed to increase the energy efficiency and lower your heating and cooling costs. The total amount the repairs will cost is provided to the lender and he or she can then create specific loan terms for you. If you agree to these terms, you are provided with the money to complete the projects, up to the loan amount. You can learn more about energy assistance programs from your state when you download our helpful free guide.