I have been getting a lot of questions on the loans I discussed in a recent show.  The loans are part of the FHA’s Energy Effecient Mortgage Program. This article offered by hud.gov helps to answer a lot of the questions. Good luck with your project! -Mary

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 efficiency features to new or existing housing as part of their FHA insured home purchase or refinancing mortgage.

Purpose

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.

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 of the approved mortgage. FHA EEMs provide mortgage insurance for a person to 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 thus 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 may be 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 are able to fold closing costs and the upfront mortgage insurance premium into 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 follows that program’s financing guidelines. For energy efficient housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD’s Title I Home Improvement Loan program.

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 determined 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 houses.

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 their useful life. Other eligibility requirements may be found in the Homeowner’s Guide.

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. This 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 lesser of A or B as follows:

A. The dollar amount of cost-effective energy improvements, plus cost of 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 limit for a single family unit depends on its location, and it is adjusted annually. To find FHA maximum mortgage limits for any county in the country. The cost of the eligible energy efficient improvements is added to the mortgage amount. The final loan amount can exceed the maximum mortgage limit by the amount of the energy efficient improvements.

Technical Guidance:

EEM is authorized under Section 513 of the Housing and Community Development Act of 1992. Program regulations are listed on the EEM mortgagee letter web page.

With oil rising to $90 a barrel this week, homeowners in the Northeast and Midwest who heat their homes with oil may be tempted to use supplementary heating sources to offset their high heating bills. These alternative heating sources, if not used properly, can contribute to an increased risk of fire, according to the Insurance Information Institute (I.I.I.).

Space heaters, wood stoves and other supplemental heating sources are the leading cause of home fires during the winter months, trailing only cooking equipment. The National Fire Protection Association reports that fixed and portable home heating devices account for two of every three home heating related fires and two of every three related deaths. In 2008 (the most recent statistics available), heating equipment was involved in an estimated 66,100 reported home structure fires, 480 civilian deaths, 1,660 civilian injuries, and caused direct property damage of $1.1 billion.

Fireplaces and chimneys were involved in 43 percent of these fires and 11 percent of the deaths. Fixed and portable space heaters, including wood stoves, were involved in 25 percent of the heating fires, but resulted in 74 percent of the fatalities.

By comparison, central home heating systems account for only a small percentage of heating-related fires and fatalities. Supplemental heating devices are more dangerous because they provide many opportunities for error by the people using them. Here are some of problems:

Lack of regular cleaning, leading to creosote buildup in wood-burning devices, chimneys and connectors. (Creosote is a flammable, tar byproduct of wood smoke that builds up on the walls of a chimney or wood stove.)
Failing to give space heaters enough space.
Flaws in the construction or design of wood-burning equipment.
Fueling errors involving liquid- or gas-fueled heating equipment.
Improper installation.
“Damage caused by fire and smoke are covered under standard homeowners and renters insurance policies,” said Loretta Worters, vice president of the I.I.I. “Homeowners are also covered for water or other damage caused by fire fighters working to extinguish the blaze.

To protect yourself from the economic consequences of fires and other disasters, the I.I.I. advises homeowners to purchase enough insurance to rebuild the home and personal possessions.

“Unfortunately, many consumers do not know what is in their policy until they have to file a claim and at that point it is too late to purchase the right amount of financial protection,” Worters explained.

For those living in a community that charges fire department services, special coverage may be available. Generally, homeowners are reimbursed up to $500 of this cost and there is no deductible.

In 2009, there were 377,000 residential fires in the U.S., costing nearly $8 billion. Because of the deadly and destructive nature of fire, insurers offer discounts and preferred rates to homes and communities that take steps to reduce the risk of fire

Homes made of fire-resistant material or located near a fire department that is highly rated often have lower insurance rates. In addition, homeowners may be eligible for discounts up to 20 percent if the wiring in a home is upgraded, sprinkler systems installed or if the house has smoke and fire alarms that ring at an outside service. Even purchasing simple safety devices such as basic smoke detectors and fire extinguishers will generally provide discounts of at least 5 percent.

If you use supplemental heating sources, remember to follow these basic safety tips.

Portable Space Heaters
The biggest mistake people make with space heaters is placing them too close to flammable materials such as bedspreads, draperies, upholstery or clothing. Space heaters need at least three feet of clearance from anything that can burn.
Make sure any new space heater carries the mark of an independent testing laboratory.
Always turn space heaters off when you leave a room or go to bed.
If you use an electric heater, do not overload the circuit. If you must use an extension cord (and it is better not to), choose one that is the same size or larger than the appliance cord. Do not use electric heaters in bathrooms or other areas where they may come in contact with water; the danger of electrocution is too great.
If you use a kerosene heater, burn only kerosene. Gasoline, camp stove fuel or any other fuel except kerosene can be extremely dangerous if used in a kerosene heater. Make sure your kerosene is water-clear, not yellow. Refuel the heater outdoors.
When turning a portable heating device on or off, follow the manufacturer’s instructions. If possible, buy devices with automatic shutoff features.
Fireplaces and Woodstoves
Wood and coal stoves, fireplaces, chimneys, chimney connectors and all solid-fueled heating equipment should be inspected and cleaned professionally each year, especially if they have not been used for some time. Fireplaces regularly build up creosote that needs to be cleaned out.
Woodstoves should be UL listed and of solid quality and design. Install them with three feet of clearance from combustible surfaces and with adequate floor support and protection.
Never use flammable liquids to start a fire in a fireplace or woodstove. Do not use excessive amounts of paper to build roaring fires. Never burn charcoal indoors; it can generate lethal amounts of carbon dioxide.
Keep flammable material away from the hearth and mantel. Use a sturdy screen to keep sparks from flying into a room.
Before you go to sleep, be sure your fireplace fire is cold. Never close the damper with hot ashes in the fireplace; the fire will heat up again and toxic carbon monoxide can spread into the house.
Synthetic logs are increasingly popular because they are so easy to use. Follow the directions on the package. Never break a synthetic log apart to quicken the fire or use more than one log at a time. This could release dangerous levels of carbon monoxide.
Central Home Heating Systems
Make sure your furnace is in good working condition. Have it inspected regularly, and leave repairs to professionals.

Get into good safety habits and teaching family members what to do in a fire or other emergency. Print a list of emergency phone numbers such as the police and fire departments and place them near the telephones in your home. Make sure that smoke detectors and fire extinguishers are in good, working condition. Install a sophisticated alarm system that rings at an outside service to contact the fire, police or local emergency medical service.

When I first met Jackie O’Neil in 2006, I was blown away by her understanding of green building. She built two net zero energy homes (for herself and her sister) and was able to do it for the price of non-green new home. So when I planned to stop by her amazing house recently, I was expecting to feel a little envious, but I wasn’t expecting any new surprises. And yes, jealous I was. She has a gorgeous home with all the ammenities and she has no utility bills– in fact she gets paid by the power company because she generates so much energy with her solar panels — she can sell the electricity to the power company!

But that was not the surprising part– I knew that from my last visit. What blew me away is where the real energy savings comes in — its not necessarily the solar panels or the geo-thermal heating unit. They are great but they don’t even factor into the majority of the energy savimgs. What Jackie learned and what she is happy to share — si that 80% of the energy savings comes from the passive stuff. Where are the windows– how well insulated is the house.

The way Jackie summed it up is like this 80% of the energy savings comes from the passive stuff– the things you will have any way. The last 20% of savings comes from the big ticket items– like the solar panels and geo-thermal HVAC.  So what can you take away from that. here are a few things to think about when creating your own master plan for energy savings.

DO THE CHEAP STUFF FIRST.

- REPLACE YOUR LIGHT BULBS WITH CFL BULBS.

- MAKE SURE ALL THE DRAFTY LEAKS IN YOUR HOME ARE SEALED. THEN STEP UP YOUR INSULATION.

-AFTER THAT THINK ABOUT YOUR SYSTEMS. DON’T BE IN A RUSH TO REPLACE THEM UNTIL IT IS ABSOLUTELY NECESSARY.

ALL OF THESE THINGS CAN HAVE A GREAT IMPACT ON YOUR MONTHLY BILLS. BEFORE YOU SPEND ON  THE BIG TICKET ITEMS– THINK ABOUT HOW THEY FIT INTO YOUR HOME’S ENTIRE ENERGY STRATEGY.. INCLUDING HOW LONG YOU PLAN TO BE IN YOUR HOME.THEY SHOULD BE THE “LAST” PURCHASES YOU MAKE.

HAVING A MORE ENERGY EFFECIENT HOME WILL NOT ONLY SAVE YOU MONEY EACH MONTH– IT WILL MAKE YOUR HOME MORE APPEALING TO POTENTIAL BUYERS– IF YOU CHOSE TO PUT IT ON THE MARKET.

For more tips see my new story on green building on the LiveWell HD TV network. For local listings visit: http://www.livewellhd.com/feature?id=6775183