The Energy Efficient Mortgage

by on June 26, 2011

The Energy Efficient Mortgage (EEM) allows FHA borrowers the opportunity to finance costly and valuable energy conservation improvements with their home loan.

  • Add up to 5% of the appraised value to the loan for home energy efficiency improvements and upgrades
  • No additional income – qualifying (does not affect qualifying ratios, down payment or appraisal)
  • 100% financed (loan-to-value does not apply)
  • Never holds up closing (all work done after close)
  • Great opportunity for you, the home buyer: any increase in monthly mortgage payment more than offset by corresponding decrease in utility bills (as much as 30-50%)
  • Increase potential resale value of your home
  • This program is recommended and supported by the U. S. Department of Energy and ENERGY STAR

Typical EEM-Qualifying Energy Improvements Include:

  • Replacing/converting outdated furnace and air conditioning units to modern, energy efficient central systems
  • Installing vinyl-frame dual pane windows
  • Upgrading or installing attic and wall insulation
  • Upgrading water heater
  • Weatherizing doors, windows, walls and pipe penetrations

The EEM Process Begins with an Energy Rating

The energy rater, or HERS (Home Energy Rating System) provider will perform an energy audit on the property. This person notes the size of the living space, amounts of insulation in the attic and walls, the age and original efficiency of the HVAC unit, the size, style, and efficiency of the windows, and the capacity, age and condition of the water heater. (Please Note-This is NOT a home inspection!)

The audit data is then evaluated by the U. S. Department of Energy computer model that factors climate zones and local utility rates to project the most effective energy conserving upgrades to the property. The fee for the energy rating (approximately $300) is an allowable closing cost; i.e., an invoice will be sent to the loan originator, copied to the closing agent for inclusion in the ‘cash to close’ calculation. If the transaction does not close, the energy rater will waive the fee.

Federal Energy Services, inc. (FES) will solicit firm bids from local contractors, based on the findings of the energy report. Next, we merge the energy report with the bids to show the cost vs. savings analysis, which we fax/email to the borrower.

So long as the monthly utility savings exceeds the cost (as financed into the home loan, up to 5% of the appraised value), the borrower may include any of the suggested energy improvements. When the borrower has made a decision as to which energy improvements are to be made, we generate the necessary supporting documentation for the laon file. No work will be performed until the title transfers to the buyer.

Once the transaction closes, FES coordinates the installation of the energy upgrades with the homeowner and the contractors. Following work completion, the HERS provider returns for a second inspection, issuing a final certificate once they are satisfied that the homeowner has received the contracted upgrades. FES then completes the documentation and certifications for the lender who, in turn, then releases the funds to pay the contractors.

FES strives to make the EEM program as easy as possible for all parties to the transaction. They will:

  • Explain the program to you and answer all your questions
  • Order the HERS energy rating
  • Collect contractor bids
  • Summarize the rating and bids for you
  • Assemble the documentation for the loan file
  • Coordinate completion of the improvements after close
  • Requisition funds and pay the contractors

In other words, One call does it all!

Please call me to find out how you can take advantage of this program at 408-890-6126!

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