FHA · HUD Handbook 4000.1FHA Energy Efficient Mortgage (EEM): financing energy upgrades with the purchase

FHA's Energy Efficient Mortgage lets a buyer add the cost of energy improvements to the loan at purchase or refinance, for one-to-four-unit new or existing homes, one condominium unit or manufactured housing, with 203(b) purchases and no cash-out refinances, 203(h) disaster loans, 203(k) rehab loans and FHA's weatherization policy. The energy package – equipment, solar or wind technology, materials, labor, inspections and the assessment itself, optionally an EEM facilitator – must be cost-effective: its cost, including maintenance and repair, must be less than the present value of the energy saved over the improvements' useful life. For new construction, only improvements above the greater of the latest HUD-adopted energy code or the local IECC year count. The buyer must get a home energy assessment from a qualified rater – a BPI Building Analyst or Home Energy Professional Energy Auditor, a RESNET Home Energy Rater, or someone who meets state or local requirements – and the report may be no more than 120 days old. The maximum package that can be added to the base loan is the lesser of the cost-effective amount from the audit or 5% of the lowest of the property's adjusted value, 115% of the area's median single-family price, or 150% of the national conforming loan limit; the lender calculates it with FHA's EEM calculator. The package may take the loan above FHA's area mortgage limit. The buyer qualifies on the base loan amount (plus its share of the upfront mortgage insurance) before the package is added, and an approval without the package carries over to the higher payment without re-underwriting. If the work done after closing differs from the approved package, a change order and revised energy audit go to the underwriter, and funds for work that no longer passes the cost-effective test go to pay down principal.