Introduction

This topic contains information on energy efficient homes (EEH), including

Change Date

May 10, 2009

4155.1 6.A.7.a EEH Qualifying Ratios

For a mortgage loan involving an energy efficient home (EEH), the two benchmark qualifying ratios may be exceeded by up to 2 percentage points when the borrower is purchasing or refinancing an EEH.

These higher housing expense- and obligations-to-income ratios are justified due to the anticipated energy costs savings, and become 33 percent and 45 percent, respectively.

Reference: For more information on borrower qualifying ratios, see HUD 4155.1 4.F.

4155.1 6.A.7.b Eligible EEH Properties

All properties meeting the 2000 International Energy Conservation Code (IECC), formerly known as the Model Energy code (MEC) are considered

Note: Both new and existing one- to four-unit properties are eligible, including one-unit condominiums and manufactured housing.

4155.1 6.A.7.c EEH General Underwriting Policy

An EEH mortgage is initially underwritten as if the energy package did not exist, that is, by using standard FHA underwriting standards, qualifying income ratios, and maximum mortgage/minimum down payment requirements without regard to the energy package.

For an EEH mortgage on new construction, as well as those homes that were built to the 2000 IECC, or are being retrofitted to that standard, the borrower can obtain “stretch ratios” of 33 percent and 45 percent, in addition to the cost of the improvements.

4155.1 6.A.7.d EEH General Underwriting Procedures

Once it is determined that both the borrower and the property qualify for an FHA-insured mortgage, the lender must determine the dollar amount of the cost-effective energy package that may be added to the loan amount, using the energy rating report and EEM worksheet.

This dollar amount cannot exceed 5 percent (not to exceed $8,000) of the property's value, or $4,000, whichever is greater. Regardless of the property's value, every borrower who otherwise qualifies can finance at least $4,000 of the costs of the Energy Package, if the cost exceeds $4,000.

The calculated amount must be added to the approved base loan amount to total the final FHA-insured loan amount, before adding any upfront mortgage insurance premium (UFMIP).

The FHA maximum loan limit for the area may be exceeded by the cost of the energy efficient improvements.

4155.1 6.A.7.e EEH Underwriting Procedures for New Construction Mortgages

When qualifying the borrower, the cost of the energy package must be subtracted from the sales price, since the builder has included the improvements in the sales price.

Calculate the qualifying ratios on the lower amount.

4155.1 6.A.7.f EEH Policy Guidance for Streamline Refinances

The borrower's principal and interest (P&I) payment on the new loan including the energy package, may be greater than the P&I payment on the current loan, provided that the estimated monthly energy savings as shown on the Home Energy Rating Systems (HERS) report exceeds the increase in the P&I.