How the FHA Energy Efficient Mortgage Program Works

FHA energy efficient mortgage program

An energy-efficient home can save homeowners thousands of dollars each year.

However, the cost of making energy improvements to a home is often quite expensive.

Now you can get an FHA loan, plus additional money to make energy-efficient upgrades to your home with one mortgage.

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What is the FHA Energy Efficient Mortgage Program?

By making energy efficient improvements to a home will help families have more money to put towards a mortgage payment by saving money on utilities.

The U.S. Department of Housing and Urban Development understands this, which is why they started the program as a pilot in 1992 in 5 states. In 1995 the EEM program was expanded to all 50 states.

The EEM program insures the loan used to purchase a home, plus the costs of energy-efficient upgrades and improvements. A borrower needs to qualify for the loan amount, not the extra money used for the costs of energy efficient items.

How does it work?

Just like with an FHA loan, an energy-efficient mortgage is also offered and funded by private lending institutions, banks, credit unions, direct lenders, and mortgage brokers.

The Federal Housing Administration insures the mortgage. In the event a borrower defaults on the payments, FHA will reimburse the mortgage company to cover their losses and take ownership of the home.

The Energy Package

The borrower will have an energy package in which to choose which home improvements they want with the guidance of a home energy assessor. The package includes solar and wind energy technology, as well as the cost of labor, inspection, and materials.

Energy Efficient Improvements

  • Smart thermostat
  • LED light bulbs
  • Low flow showerheads
  • Solar panels
  • Solar-powered outdoor lighting
  • Motion-activated LED security and floodlights
  • Repairing or replacing air/heating system
  • Additional insulation in the attic, crawl space
  • Energy-efficient windows and doors

Improvements Must Be Cost-Effective

In order for an upgrade to be considered cost-effective, the estimated lifetime savings should surpass the cost of materials, installation, and inspection.

How Much of Energy Package is Able to be Financed?

The maximum amount allowed to add onto the FHA loan to finance improvements:

All cost-effective improvements can be made up to the lesser of 5% of the adjusted home value, 115% of the median price for the area, or 150% of the conventional loan limit. $8,000 limit.

203k Loans

Another form of FHA loan is the 203(k) home loan. A 203k loan is similar to a regular FHA loan, except extra money up to $35,000 can be given onto the purchase price to pay for home improvements, repairs, and renovations.

An EEM loan can also be used in combination with a 203k loan for even more funds to make home improvements.

More information about the FHA EEM loan program can be found on

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