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Purpose:
This program seeks to help achieve national energy-efficiency
goals (and reduce pollution) and provide better housing for
people who might not otherwise be able to afford it. By considering
the savings on monthly utility bills when determining how
large a mortgage the household can afford, as many as 250,000
more new home buyers could qualify per year, according to
a 1986 study by the Joint Center for Housing Studies. Although
EEMs have been available in some States since 1980, they have
been little understood or marketed. With EEMs, borrowers do
not need to get a separate, costly loan for energy improvements
when buying an existing home.
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 home buyers)
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 97
percent financing, and are able to fold closing costs and
the up-front 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 may also consider
HUD's Title
I Home Improvement Loan program.
How
to Get a EEM:
FHA-approved
lending institutions-which include many banks, savings and
loan associations, and mortgage companies-can make loans covered
by EEM insurance.
Eligible
Customers:
All
persons who meet the income requirements for FHA's
standard Section 203(b) insurance and can make the monthly
mortgage payments are eligible to apply. The cost of the energy
improvements and estimate of the energy savings must be determined
by a home energy rating system (HERS) or an energy consultant.
Up to $200 of the cost of an energy inspection report may
be included in the mortgage. Cooperative units are not eligible;
individual condominium units may be insured if they are in
projects that have been approved by FHA or the Department
of Veterans Affairs, or meet certain Fannie Mae guidelines.
EEM can also be used with FHA's
Section 203(h) program for mortgages made to victims of
presidentially declared disasters. The mortgage must comply
with both Section 203(h) requirements, as well as those for
EEM. However, the program is limited to one-unit detached
houses.
Eligible
Activities:
EEM can be used to make energy-efficient improvements in one
to four existing and new homes. The improvements can be included
in a borrower's mortgage only if their total cost is less
than the total dollar value of the energy that will be saved
during their useful life. The cost of the improvements that
may be eligible for financing as part of the mortgage is either
5 percent of the property's value (not to exceed $8,000) or
$4,000--whichever is greater. The maximum
mortgage limit for a single-family home is $160,950, plus
the cost of the eligible energy-efficient improvements. (Limits
may be lower in some areas of the country.) .
Application:
Applications must be submitted to the local HUD Field Office
through an FHA-approved lending institution. HUD's homepage
offers a searchable
list of approved lenders.
Funding
Status:
In FY 1996, 3,500 loans were endorsed. In FY 1997, 4,700 loans
were endorsed.
Technical
Guidance:
EEM is authorized under Section 513 of the Housing and Community
Development Act of 1992. Program regulations are in Mortgage
Credit Analysis for Mortgage Insurance on One-to-Four-Family
Properties (HUD Handbook 4155.1), paragraph 2-20. This and
other FHA programs are administered by the Office of Single-Family
Housing in HUD's Office of Housing-Federal Housing Administration.
Contact the Director
of Single-Family Housing at the nearest HUD Home ownership
Center.
For
More Information:
The
Department
of Energy (DOE) and HUD established a Joint Initiative
on Energy Efficiency in Housing. To learn more about this
collaborative effort, see DOE/HUD Initiative on Energy Efficiency
in Housing: A Federal Partnership, Program Summary Report,
which is available from HUD
USER (1-800-483-2209).
U.S.
Department of Housing and Urban Development
451 7th Street S.W., Washington, DC 20410
Telephone: (202) 708-1112 TTY:
(202) 708-1455
Find
the address of a HUD office near you
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