Are You Ready to Underwrite Energy Efficient Mortgages (EEM)?

Written By: Glenn Michaels, Op-Ed Writer

In order to underwrite an Energy Efficient Mortgage (EEM) you must make certain the borrower will demonstrate an energy savings and an energy improvement with the mortgage loan under the FHA 203(K) mortgage loan program.

•    Understanding the Energy Efficient Mortgage (EEM): There are two sides to the EEM coin.  The EEM allow cost effective energy saving measures that may be financed as part of the mortgage.Make an older, less efficient home more comfortable and affordable.
•    Buyers can increase their buying power. Borrowers can stretch their debt to income qualifying ratios on loans for energy efficient homes. Qualify for a larger amount, buy a better, more energy efficient home.

The energy savings must indicated in a Home Energy Rating Systems (HERS) which is similar to a miles per gallon report for an automobile. HERS are programs that provide evaluations of an individual’s home energy efficiency.  A EEM mortgage has a slight increase in the monthly mortgage payment but the monthly savings due to the energy improvements tend to be lower than the increased monthly mortgage payment.

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The HERS report includes:
a.    The overall rating of the house as is.
b.    Recommended energy upgrades.
c.    Estimate of the cost, annual savings, and useful life of the upgrades.
d.    Improved rating index after the installation of recommended upgrades
e.    Estimated annual total energy costs for the existing before and after upgrades
f.    The rating index is between 1 and a 100.  The lower the number the greater energy efficiency.
g.    Cost effective upgrades are those that will save money through energy savings.

Below is a sample EEM and the savings to the borrower:

                                                           Existing Home        Energy Improved Home

Home Price 90% @8% interest            $150,000                $154,816
Loan Amount                                       $135,000                $139,334
Monthly Payment  (P % I only)            $991.00                  $1,023.00
Energy Bills                                       +  $186.00              +  $93.00
True cost of home ownership                $1,177.00               $1,116.00
Monthly Savings                                                               -  $61.00

When underwriting an Energy Efficient Mortgage available in all fifty (50) states with energy upgrades you can:
•    Loan limits can be expanded
•    No requalifying for the loan
•    No additional downpayment for the home
•    No new appraisal.

When doing a EEM they must be done in conjunction with FHA’s 203(k) program.  When you do a FHA 203(K) and complete the Maximum Mortgage Worksheet for a 203(K) in box A6 the energy improvement amount is placed in it. In addition Schedule “E” of the Maximum Mortgage Worksheet indicates the total mortgage with the EEM provision of the mortgage.

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.