What is an FHA Energy Efficient Mortgage?

An FHA Energy Efficient Mortgage allows homeowners to take out a traditional FHA mortgage, plus borrow money to make energy-saving improvements on the property they purchase. The money for the improvements is rolled into the mortgage but does not increase the borrower’s down payment or make it more difficult to qualify.

Who is an FHA Energy Efficient Mortgage For?

The FHA Energy Efficient Mortgage is designed for families who want to make energy-saving improvements on their new homes but cannot afford the expense. If you already have the funds to make these changes, it may not make sense to pay for them over the next 30 years (as a part of a mortgage).

How Does an FHA Energy Efficient Mortgage Work?

Once a borrower applies for an Energy Efficient Mortgage, he must meet several qualifications. He must submit a home energy rating report created by a specialized consultant. The anticipated improvements may be no more than 5% of the property’s value or a total of $8,000. They must be cost-effective, meaning that the value of the energy saved must be more than the money spent on updates.

After the reports are accepted and the FHA loan closes, the improvement funds will be placed in an escrow account. The borrower will pay for the discussed updates out-of-pocket and will be reimbursed from the escrow account once an inspector verifies the improvements.

Learn More

To learn more about FHA loans see: FHA Mortgage Basics.