March 21, 2014
A reader asks, “Will FHA allow a house with no heat to use (the FHA Energy Efficient Mortgage) energy package? The EEM program states “improve”; what if it is a question of not having heat at all. Does this program still apply?”
There are several different standards that might affect such a transaction. The reader wants to know whether a home without a heating system might be eligible for an FHA mortgage using an Energy Efficient Mortgage that could, if the question is interpreted correctly, add a heating system.
What do FHA loan rules say about this?
For starters, ” “FHA will endorse a mortgage for an existing property before the energy- efficient improvements are installed, provided that the lender establishes an escrow account and deposits funds into the account to pay for the energy- efficient improvements.”
Furthermore, “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 means that the home would most likely be appraised without the EEM consideration. If the property doesn’t meet FHA standards, it would have to have corrections (if possible) as a condition of loan approval. What’s more, state or local building code may require the home to have a heating system. The borrower would have to check with the local authority to see if this applies.
It’s entirely possible that depending on the geographic location, a home without a heating system could be approved for a loan provided it meets the standards set by FHA loan rules and the state/local building code. But it’s just as possible that a heating system IS required in this particular case, and the borrower would have to learn what “next steps” are from the appraiser before proceeding unless the lender or a reputable agent in the area knows what precedents have been set by previous transactions in that area.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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 www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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