4. Processing and Underwriting Requirements

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Introduction

This topic contains information on the processing and underwriting requirements, including

•

processing an EEM, and

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the Energy Efficient Mortgage Worksheet.

Change Date

May 10, 2009

4155.1 6.D.4.a Processing an EEM

When a borrower submits a loan application, the lender processes the loan application and qualifies the borrower using the standard underwriting requirements and qualifying ratios.

If the borrower elects to have an EEM and add the cost of the energy efficient improvements to the mortgage, the lender must complete the additional processing steps found in the table below.

Step

Action

1

Obtain the home energy rating report prepared by a HERS representative or energy consultant showing

•

the estimated costs of installing the energy efficient improvements, including any maintenance costs, and

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the estimated annuals savings in utility costs that will result from the installation of the energy efficient improvements.

2

Using the HERS report, determine whether the energy efficient improvements are “cost effective” by calculating the

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present cost of the energy improvements, including maintenance costs (if any) over the useful life of the improvements, and

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present value of the energy savings over the useful life of the energy improvements.

3

Are the energy-efficient improvements cost effective (meaning that the present cost of improvements is less than the present value of the energy savings)?

•

If yes

–

add 100 percent of the cost of the energy-efficient improvements, subject to the dollar limits described in HUD 4155.1 6.D.2.d, to the otherwise allowable maximum mortgage amount, and

–

go to Step 4.

•

If no, do not include the additional expense of the energy package in the maximum mortgage amount.

Note: If the improvements are determined to be cost effective, no appraisal is necessary and the borrower is not required to meet any further credit standards.

4

Calculate the UFMIP on the full mortgage amount, which includes the cost of the energy improvements.

4155.1 6.D.4.b Energy Efficient Mortgage Worksheet

The following is a copy of the Energy Efficient Mortgage Worksheet.

Energy Efficient Worksheet

Borrower's Name:

FHA Case No.:

Property Address:

 

A. Qualifying Mortgage Amount

1. Mortgage (w/o MIP)

A. $ ___________

B. EEM Amount

The Home Energy Rating Report will provide the

 

•

information on the Recommended Energy Package

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cost, and

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present value of the energy saved.

 

Compare Cost and PV of energy savings:

 

•

Cost of the Energy Package $ ____

•

PV of Energy Saved $ _____

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Is PV more than Cost? Y / N

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If Yes, Continue:

 

1. If the Cost is less than $4,000, enter the Cost in B.

B. $ ___________

 

2. If the Cost is more than $4,000, but 5% of the value is less than $4,000, enter $4,000 in B.

 

 

3. If the Cost is less than 5% of the value, but 5% of the value is more than $4,000, enter the lesser of the cost, or $8,000 in B.

 

 

4. If the Cost is greater than 5% of the value, enter the lesser of 5% of the value, or $8,000 in B.

 

C. Final EEM Mortgage Amount (without MIP)

Add A and B.

C. $___________

REMARKS: