October 31, 2007

ENERGY STAR® Homes Qualify for
FHA's Energy Efficient Mortgage Program

Buying an Energy Star home has always been a prudent investment, with the value of the monthly energy savings exceeding the added mortgage cost of buying the additional energy features. This is financial leverage for the buyer: free cash flow that allows lenders to offer Energy Star homebuyers better mortgage terms.

Called an Energy Efficient Mortgage (EEM), lenders like FHA are allowing Energy Star homes to qualify for higher mortgages based on the energy savings. Under the FHA EEM program, homebuyers can finance 100% of the additional cost to buy up to Energy Star.

The process for qualifying for the EEM is simple. Once it is determined that both the borrower and the property are eligible for an FHA mortgage and the buyer selects an Energy Star home design, the home retailer completes the EEM application available from the Manufactured Housing Research Alliance (MHRA). MHRA determines the allowable increase in the mortgage amount, and will provide that information directly to the retailer and lender for completing the loan application.

The EEM enables the buyer to put the value of the energy savings back into the home. Features of the FHA EEM include the following:

• Any FHA-approved lender can approve the EEM.
• The EEM is initially underwritten as if the Energy Star package did not exist. When qualifying a homebuyer, the cost of the energy improvements is subtracted from the sales price of the home.
• The homebuyer qualifies for a 2% increase in their qualifying income ratios, and these ratios are calculated on the cost of the home before the energy improvements.
• Up to $8,000 can be added to the loan amount, based on a calculation that takes the expected energy savings into account. The borrower does not have to qualify for the additional financing or make a higher down payment.
• The calculation for the private mortgage insurance premium is based on the cost of the home before the energy improvements.
• The home is not subject to an on-site home energy rating in order for a homebuyer to qualify for an EEM.

A copy of FHA's EEM Mortgagee Letter, the letter from FHA approving Energy Star manufactured homes as eligible for the EEM and MHRA as a home energy rater, and the application for a Manufactured Home Energy Report can be downloaded here. For more information, contact Gwynne Koch at gkoch@research-alliance.org or 212-496-0900 x12.

Copyright 2007 All rights reserved. No part of this newsletter may be reproduced, stored in a retrieval system, or transcribed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of MHRA. For comments or questions related to MHRA ENERGY STAR Update, contact Gwynne Koch via e-mail at gkoch@research-alliance.org. To subscribe, send an email to energystar@research-alliance.org with Subscribe in the subject line.