An Energy Efficient Mortgage (EEM) is a home loan that factors projected energy savings from efficiency improvements into the borrowing calculation, allowing qualified buyers to borrow more money while maintaining standard debt-to-income ratios. This FHA-approved program makes energy-efficient homes accessible by recognizing operational cost reductions.
Borrowing Mechanics
EEMs allow lenders to add 5% to 15% of projected annual energy savings to the borrower’s qualifying income, directly increasing approved loan amounts by $10,000 to $40,000. The property must undergo energy audit certification, typically costing $300 to $500. Combined with 3% FHA down payments, EEMs make energy-efficient homes affordable for first-time buyers and lower-income households.
Eligible Improvements
EEMs cover solar photovoltaic systems, heat pump upgrades, ENERGY STAR appliances, high-efficiency furnaces, insulation, and window replacements. Monthly energy savings of $75 to $150 are common for comprehensive improvements. The program requires lender and appraiser cooperation to verify expected efficiency gains and properly document baseline energy consumption data.