FHA'S Energy Efficient Mortgage Program
FHA's Energy Efficient Mortgage 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.
In 1992, Congress mandated a pilot demonstration of Energy Efficient Mortgages (EEMs) in five
states. In 1995, the pilot was expanded as a national program.
EEMs recognize that reduced utility expenses can permit a homeowner to pay a higher mortgage
to cover the cost of the energy improvements on top of the approved mortgage. FHA EEMs
provide mortgage insurance for a person to purchase or refinance a principal residence and
incorporate the cost of energy efficient improvements into the mortgage. The borrower does not
have to qualify for the additional money and does not make a down payment on it. The mortgage
loan is funded by a lending institution, such as a mortgage company, bank, or savings and loan
association, and the mortgage is insured by HUD. FHA insures loans. FHA does not provide loans.
Type of Mortgage:
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
96.5 percent financing, and are able to fold closing costs and the upfront 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. For energy efficient housing rehabilitation activities that do
not also require buying or refinancing the property, borrowers