December 2, 2021

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The FHA Energy Efficient Mortgage

With summer fading and the winter season only a few months away, many house hunters and home owners begin thinking about heating bills, weatherproofing, and other preparations for the cold weather season. In many areas where extreme weather is a typical part of the winter months, these considerations are even more important.

For FHA borrowers who live in areas with seasonally high utility bills, there is help from the FHA in the form of the FHA Energy Efficient Mortgage or EEM.

The FHA Energy Efficient Mortgage began as an experiment in 1992, expanding to a full-blown FHA loan feature in 1995. The FHA official site says of these loans, “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.” FHA EEM loans are available for new purchase loans and as part of an FHA Streamline Refinancing package.

Borrower can include EEM terms as part of a new purchase FHA home loan only under certain conditions. The cost of the improvements must be less than the total present value of the energy savings “over the useful life of the energy improvement” according to the FHA. But how is this determined?

FHA rules say the costs and savings must be measured using a home energy rating report, completed by a qualified energy consultant using a Home Energy Rating System. These reports must be paid for by the borrower. FHA rules for Energy Efficient Mortgages allow the cost of the energy rating report (and any required inspections) to be included in the loan amount.

One of the most important aspects of an FHA EEM how and when the improvements are paid for. This program requires all upgrades or improvements to be installed after the loan has closed, and the FHA warns borrowers not to install the improvements before that time unless there is express written permission from the lender.

According to FHA rules, “The energy improvements are installed after the loan closes. The lender will place the money in an escrow account. The money will be released to the borrower after an inspection verifies that the improvements are installed and the energy savings will be achieved.”

Payment for the repairs depends entirely on the inspection; EEM loan money for the upgrades or improvements may only released to the borrower once it’s determined that the improvements do what they are supposed to do–save money and conserve energy.

Joe Wallace - Staff Writer

By Joe Wallace

September 9, 2011

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for for (8) years and is currently the Associate Editor for

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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