FHA Announces a Ratio Stretcher Program

Written By: Glenn Michaels

The FHA has announced new standards for Energy Efficient Homes (EEH) with stretched ratios. This is in conjunction with the Department of Energy’s Home Energy Score.

If borrowers buy, build or refinance a property with energy improvements as adopted by the United States Department of Energy (DOE) and by the United States Department of Housing and Urban Development. (HUD) minimum energy efficiencies standard and adds the Home Energy Score option on existing construction homes. The EEH allows ratios to be stretch by 2 percentage points in order to qualify for homes meeting the energy efficient standards.

Homes that meet the EEH guidelines can qualify using 33% and 45% ratios respectively.  To obtain these stretched ratios a home must have a reliable Home Energy Score indicating the home’s energy efficiency.

1.    Homes must score a “6” or higher on the Home Energy Score scale. Or
2.    Homes where documented cost effective energy improvements, as identified in the Home Energy Score Report would increase a home’s to a “6” or higher are completed before closing.
3.    Escrowing for energy related repairs.

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Some of the items that can achieve the necessary score is insulation of a home, installation of new energy efficient windows and doors, more efficient heating plant and air conditioning plant.

This would be an excellent addition to the FHA 203(K) program that currently allows a lender to increase the work and loan amount due to energy improvement.  

Currently to obtain an Energy Efficient Mortgage a borrower must have a “HERS” report showing adequate energy improvement. It is my belief that the EEM mortgage will change to reflect the EEH program.

The timing is great for the program as the cold areas of the United States will be in winter and will need energy improvements.

This program is available with case numbers assigned on or after January 25, 2016.


About The Author

Glenn Michaels - As an NAMP® staff writer, Glenn Michaels is a mortgage underwriting instructor for Mortgage Underwriter University (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. If you're interested in becoming a writer for NAMP®, please email us at:contact@mortgageprocessor.org.


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