In a recent blog post we discussed the FHA Energy Efficient Mortgage Loan (EEM) and some of the basics of the program. The FHA EEM is for new purchase and refinancing mortgages and lets the borrower finance additional costs of energy-efficient upgrades or improvements to the home.
Because the FHA loan program has loan limits and specific rules that govern those limits, it is easy to see how borrowers new to the FHA loan program could be confused by the terms of such a loan. After all, if a borrower can add at least $4,000 (or as much as $8,000 depending on the circumstances) to the FHA loan, how does one roll the costs of the improvements into the mortgage without exceeding the FHA loan limit for that purchase?
According to FHA loan rules, “The EEM is initially underwritten as if the energy package did not exist, using standard FHA underwriting guidelines, qualifying income ratios, and maximum mortgage/minimum downpayment requirements, without regard to the energy package.” That