Energy Efficient Mortgage Program (EEM)

Written By: Glenn Michaels, Op-Ed Writer

FHA’s Energy Efficient Mortgage Program (EEM) helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy efficient features to new or
existing housing as part of their FHA insured home purchase or refinancing mortgage.


In 1992, Congress mandated a pilot demonstration of Energy Efficient Mortgages (EEMs) in five states. In 1995 the pilot was expanded as a national program.

Need FHA Training? CLICK HERE:

EEMs recognize that reduced utility expenses can permit a homeowner to pay a higher mortgage to cover the cost of the energy improvements on top the approved mortgage. FHA EEMs provide mortgage insurance for a person tp purchase or refinance a principal residence and incorporate the cost of energy efficient improvements into the mortgage. The borrower does not have to qualify for the additional money and does not make a downpayment on it. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, or savings and loan association, and the mortgage is insured by HUD. FHA insures loans. FHA does not provide loans.

Type of Mortgage

EEM is one of many FHA programs that insure mortgage loans and that 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 maybe hard to get). Borrowers who obtain FHA’s popular Section 203 (b) mortgage insurance for one to four family homes are eligible for approximately 96.5 percent financing, and the upfront mortgage insurance premium to the mortgage. The borrower must also pay an annual premium.

EEM can also be used with the FHA Section 203 (k rehabilitation program and generally follow that program’s financing guidelines.

How to get a EEM

To apply for an FHA insured energy efficient mortgage contact an FHA approved lender.

Eligible Customers

All persons who meet the income requirements for FHA’s standard Section 203 (b) insurance and can make the monthly mortgage payments are eligible to apply. The cost of the energy improvements and estimate of the energy savings must be determines by a home energy rating system (HERS) or an energy consultant. The cost of an energy inspection report and related fees may be included in the mortgage. Cooperative units are not eligible.

EEM can also be used with FHA’s Section 203 (h) program for mortgages made to victims of presidentially declared disasters. The mortgage must comply with both Section 203 (h) requirements, as well as those for EEM. However the program is limited to one unit detached homes.

Eligible Activities

EEM can be used to make energy efficient improvements in one to four existing and new homes. The improvements can be included in a borrower’s mortgage only if their total cost is less than the total dollar value of the energy that will be saved during the useful life. There are other eligibility requirements.

Eligibility Requirements

• The borrower is eligible for a maximum FHA insured loan, using standard underwriting procedures. The borrower must make a 3.5 percent downpayment. The 3.5 percent downpayment is based on the sales price or appraised value. Any upfront mortgage insurance premium can be financed as part of the mortgage.
• Eligible properties are one to four unit existing and new construction. EEMs may be added to some other loan types, including streamline refinances.
• The cost of the energy efficient improvements that may be eligible for financing into the mortgage is the lessor of “A” or “B” as follows:

Need FHA Training? CLICK HERE:

A. The dollar amount of cost effective energy improvements, plus cost of the report and inspections, or
B. The lesser of 5% of:
• The value of the property, or
• 115% of the median area price of a single family dwelling, or
• 150% of the conforming Freddie Mac limit.
• To be eligible for inclusion in the mortgage, the energy efficient improvements must be cost effective, meaning that the total cost of the improvements is less than the total present value of the energy saved over the useful life of the energy improvement.
• The cost of the energy improvements and estimate of the energy savings must be determined by a home energy rating report that is prepared by an energy consultant using a Home Energy Rating System (HERS). The cost of the energy rating report and inspections may be financed as part of the cost effective energy package.
• The energy improvements are installed after the loan closes. The lender will place the money in an escrow account. The money will be released to the borrower after an inspection verifies that the improvements are installed and the energy savings will be achieved.
• The maximum mortgage is determined by the county and state that the property is situated in.
• EEM is authorized under Section 513 of the Act.

About The Author

Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter ( 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. 

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.