FHA Energy Efficient Mortgage program (EEM) helps families save money on their utility bills by allowing home buyers and homeowners to finance energy efficient improvements with their FHA insured mortgage.

The Energy Efficient Mortgage program was created after recognizing that an energy-efficient home will have lower operating costs, making it more affordable for the homeowners.  Cost-effective energy improvements can lower utility bills and make more income available for the mortgage payment.

Creators of the FHA Energy Efficient Mortgage Program recognized that a reduction in utility expenses can permit a homeowner to pay a higher mortgage to cover the cost of the energy improvements on top of the approved mortgage.

Under its Energy efficient mortgage program, FHA Insures a borrower’s mortgage used to purchase or refinance a principal residence, and the cost of energy efficient improvements to be made to the home. The borrower does need to qualify for the loan amount used to purchase or refinance a home.  The borrower is not required to be qualified on the total loan amount with the portion of loan used to finance energy efficient improvements. Like all FHA insured mortgages, the loan is processed, approved, and funded by a lending institution, such as a mortgage company, bank, or savings and loan association.  FHA does not lend money, the Federal Housing Authority only insures the loans to protect the lender against loss in the event of payment default.

Energy Efficient Mortgages are 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 homebuyers) and to residents of disadvantaged neighborhoods (where mortgages may be hard to get).

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.