Finance Roll

Many home owners want to save money on their utility bill by installing energy efficient upgrades, remodeling, adding new windows or even installing solar panels. Changes to a home can be expensive leaving borrowers to use their savings or finance upgrades on a credit card or home equity line of credit. The FHA has a home loan program that allows borrowers to finance energy efficient upgrades into their home refinance or purchase loan.

The Federal Housing Administration has the Energy Efficient Mortgage program (EEM) that can help home owners save money and help the environment at the same time.

FHA EEM Program Features

• Owner occupied homes only. You need to live there in order to qualify.


• Purchase or Refinance. This is excellent for home buyers purchasing an older home. You can finance upgrades into your purchase loan.


• The cost of improvements are determined by an energy consultant or a home energy rating system (HERS). This expense can be rolled into the home loan.


• Homes with one to four units are eligible.


• Borrower is required to make a 3.5% down payment of either the purchase price or appraised value.


• The cost of the improvements need to be less than 5% of the appraised value, 150% of the conforming loan limit ($417,500), or 115% of the local area median home price. For example if your home is appraised at $300,000 the improvements need to be $15,000 or less.

When considering what type of energy efficient improvements to make, consider the FHA requirements. Whatever you are installing needs to cost less than the amount it will save you in energy expense over its useful life. For example if you are purchasing new windows that cost you $15,000 they would evaluate how long it will be before you need to replace the windows and how much energy they will save. By determining your projected savings, over the course of the windows life, they will determine if the upgrade expense qualifies. This prevents borrowers from spending too much money on upgrades. In many ways this requirement protects the consumer. If you want to install upgrades that will cost more than they save, you can still do so by paying for them in cash.

In order to get the FHA's Energy Efficient Mortgage program you need to work with an FHA approved lender. These loans are more complicated than a standard refinance or purchase loan so work with a lender who has extensive experience working with the FHA. Once the loan is approved the lender will place the money for improvements into an escrow account. After the improvements have been installed the lender will release the funds to pay for them. It is important to negotiate with contractors and product suppliers for payment terms. They need to install the items, invoice you, then you can submit the bills to the lender for inspection and payment. Contact an FHA approved lender today to learn how your home can go Green without tapping into your savings account.