www.hudclips.org
U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000
May 24, 1993
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 93-13
TO: ALL APPROVED MORTGAGEES
SUBJECT: Single Family Loan Production-Energy Efficient Mortgage
Pilot Program
In compliance with Section 513 of the Housing and Community
Development Act of 1992 (Act), HUD is establishing an FHA Energy
Efficient Mortgage (EEM) Pilot Program for existing properties
located in the following states: Alaska, Arkansas, California,
Vermont and Virginia. This Pilot Program is effective immediately.
An EEM recognizes the energy savings of a home that has "cost
effective" energy saving improvements that increase the energy
efficiency of a home. Because the home is energy efficient, the
family will save on utility costs and thereby can afford to devote
more of its income to the monthly mortgage payment. Energy
efficiency can include both energy saving and active and passive
solar technologies.
Under the FHA EEM Pilot Program, a borrower can finance into
the mortgage 100% of the cost of eligible energy efficient
improvements, subject to certain dollar limitations, without an
appraisal of the energy efficient improvements. To be eligible for
inclusion into the mortgage, the energy efficient improvements must
be "cost effective," i.e., the total cost of the improvements
(including maintenance costs) must be less than the total present
value of the energy saved over the useful life of the improvements.
The mortgage includes the cost of the energy efficient improvements
in addition to the usual mortgage amount permitted by Regulations.
The detailed program requirements and processing and
underwriting procedures for the FHA EEM Pilot Program are set forth
below.
I. BASIC PROGRAM REQUIREMENTS
A. Only existing one and two unit properties located in
the above mentioned States are eligible. New
construction is not eligible, nor are three and four
unit existing properties.
_____________________________________________________________________
2
B. The cost of any improvement to the property that will increase
the property's energy efficiency and that is determined to be
"cost effective" is eligible for financing into the mortgage and
its cost may be added to the mortgage amount up to the greater
of:
1. 5% of the property's value (not to exceed $8,000) or,
2. $4,000.
"Cost effective" means that the total cost of the improvements,
including any maintenance costs, is less than the total present
value of the energy saved over the useful life of the energy
improvement. The FHA maximum loan limit for the area may be
exceeded by the cost of the energy efficient improvements.
C. The cost of the energy improvements (including maintenance costs)
and the estimate of the energy savings must be determined based
upon a physical inspection of the property by a home energy
ratings system (HERS) or energy consultant.
The HERS or energy consultant must be an independent entity, not
related, directly or indirectly, to the seller of the property or
the prospective borrower. The contractor selected by the
borrower to install the energy efficient improvements may not be
related, directly or indirectly, to the HERS or energy
consultant. The HERS or energy consultant may be:
1. a utility company or,
2. a local, state or Federal government agency or,
3. an entity approved by a local, state or Federal government
agency specifically for the purpose of providing home
energy ratings on residential properties or,
4. a non-profit organization experienced in conducting home
energy ratings on residential properties.
D. The home energy rating report prepared by the HERS or energy
consultant must be a written report provided to the prospective
borrower and lender and it must contain the following
information:
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3
1. Address of the property.
2. Name of the current owner(s) of the property.
3. Date of the property inspection.
4. Description of the energy features currently in the
property. This must include, at a minimum, a description
of the insulation R values in ceilings, walls and floors;
infiltration levels and barriers (caulking,
weatherstripping and sealing); a description of the windows
(storm windows, double pane, triple pane etc.) and doors;
and a description of the heating (including water heating)
and cooling systems.
5. Description of the improvements recommended to improve the
energy efficiency of the property.
6. Estimated costs of the energy improvements, their useful
life and the costs of any maintenance over the useful life.
7. Present estimated annual utility costs before installation
of the energy efficient improvements.
8. Estimated annual utility costs after installation of the
energy efficient improvements.
9. Estimated annual savings in utility costs after
installation of the energy efficient improvements.
10. Printed name(s) and signature(s) of the person(s) that
inspected the property and prepared the report and the date
of preparation of the report.
11. The following certification, signed by the person(s) who
inspected the property and prepared the report, must
accompany the report:
"I certify, that to the best of my knowledge and belief,
the information contained in this report is true and
accurate and I understand that the information in this
report may be used in connection with an application for an
energy efficient mortgage to be insured by the Federal
Housing Administration of the United States Department of
Housing and Urban Development."
_____________________________________________________________________
4
E. A mortgage for the purchase or refinance (including rate
reduction streamline refinance) of a property to be insured under
Section 203(b), Section 221(d)(2) or Section 234(c) is eligible
for this EEM Pilot Program. For streamline refinance
transactions, however, lenders are reminded that the borrower's
monthly payment for principal and interest for the refinance
mortgage (which will include the cost for the energy efficient
improvements) must be lower than the monthly principal and
interest on the current mortgage.
F. An escrow account may be established for no more than three
months after loan closing to allow for installation of the energy
efficient improvements. The escrow account may be administered
by the lender, a utility company, a non-profit organization or a
government agency. The escrow account must be insured and be
established at a financial institution supervised by a Federal
agency.
II. PROCESSING AND UNDERWRITING REQUIREMENTS
A. The lender will first process the mortgage loan application and
qualify the borrower using our 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 take the following additional steps:
1. The lender must obtain a report prepared by a HERS or
energy consultant showing the estimated costs of installing
the energy efficient improvements (including any
maintenance costs) and the estimated annual savings in
utility costs that will result from the installation of the
energy efficient improvements.
2. Using the HERS or energy consultant's report, the lender
must determine that the energy efficient improvements are
"cost effective" by calculating the present cost of the
energy improvements, including maintenance costs, if any,
over the useful life of the improvements and the present
value of the energy savings over the useful life of the
energy improvements. If the energy efficient improvements
meet the "cost effective" test, i.e. present cost of
improvements is less than the present value of the energy
savings, then the lender may add 100 percent of the cost of
the energy efficient improvements (subject to the dollar
limits in paragraph IB, above) to the otherwise allowable
maximum mortgage amount. (See Attachment A to this letter
for examples showing how to make these calculations and
Attachment B
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5
to this letter which is an EEM Worksheet that must be used
to qualify the borrower for the mortgage before adding the
energy efficient improvements and then to calculate the EEM
amount. If the mortgage is an EEM, Attachment B must be
attached to the Mortgage Credit Worksheet (Form
HUD-92900WS) when the lender submits the case for insurance
endorsement). No appraisal of the energy efficient
improvements is necessary and the borrower need not meet
any further credit standards. If the energy efficient
improvements meet the "cost effective" test, then the full
cost of the improvements can be added to the borrower's
base loan amount without a determination of value and
without further credit qualification.
3. The lender will calculate the upfront mortgage insurance
premium on the full mortgage amount (which will include the
cost of the energy improvements). Closing can then occur.
B. HUD will insure the mortgage before the energy efficient
improvements are installed, provided the lender establishes an
escrow account and deposits to it the funds to pay for the energy
efficient improvements. The escrow account shall be for a period
of no more than 90 days. If the improvements are not installed
with 90 days, the lender must apply the funds held in escrow to a
prepayment of the principal balance of the mortgage. The escrow
account may be established by the lender and administered by
either the lender, a utility company, a non-profit organization
or a government agency. However, the lender is responsible for
assuring HUD that the escrow has been cleared. Lenders shall
execute form HUD 92300, Mortgagee Assurance of Completion, to
indicate that the escrow for the energy efficient improvements
has been established and the lender, subsequently, is responsible
for notifying HUD that the improvements have been installed and
that the escrow has been cleared. The installation of the
improvements may be inspected by the lender, the HERS or a HUD
fee inspector and the borrower may be charged an inspection fee
in accordance with the local HUD Field Office fee schedule.
C. The lender must include a copy of the home energy rating report
performed by the HERS or energy consultant in the closing package
when requesting insurance endorsement.
D. When calculating the borrower's maximum mortgage amount, the
lender may include as an eligible closing cost, up to $200, the
cost of the inspection report prepared by the HERS or energy
consultant.
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6
III. DISCLOSURE STATEMENT REQUIRED TO BE GIVEN TO ALL
BORROWERS
The Act requires that all applicable borrowers receive a Disclosure
Statement informing them of the FHA EEM program requirements and the
benefits of an EEM. Therefore, the attached disclosure statement
(Attachment C to this letter) must be signed and dated by all borrowers at
the time of initial loan application who are either purchasing or
refinancing with FHA mortgage insurance, an existing one or two unit
property in the above five states. This Disclosure Statement must be given
to all applicants effective for sales contracts (or initial loan
applications for refinance transactions) signed on or after July 1, 1993.
A photocopy of this Disclosure Statement, signed by the borrowers, must be
included in the case binder when the case is submitted to the Field Office
for insurance endorsement.
If you have any questions concerning this Mortgagee Letter, please
contact the local HUD Field Offices located in the above-mentioned five
states.
Very sincerely yours,
Nicolas P. Retsinas
Assistant Secretary for Housing
- Federal Housing Commissioner
Attachments
_____________________________________________________________________
Attachment A
EFFECT ON MORTGAGE AMOUNT OF ENERGY EFFICIENT IMPROVEMENTS
NOTE: All examples assume the property appraised (not including
the energy efficient improvements) for an amount equal to or
exceeding the sales price of the property. All loan amounts are
prior to adding HUD's Upfront Mortgage Insurance Premium (UFMIP).
Calculate maximum mortgage amounts (before adding the cost of
energy efficient improvements) as presently required by applying
maximum loan-to-value (LTV) ratios to the mortgage basis, as well
as by applying the 97.75% (or 98.75 for properties at or below
$50,000) limitation to the appraised value excluding closing
costs. The lower of the two amounts determines HUD's maximum
insurable mortgage (up to the maximum dollar amount for the area)
before adding the cost of the energy efficient improvements and
UFMIP. Except as noted, no maintenance costs for the energy
efficient improvements are expected.
Example 1.
The existing property sold for $60,000. The borrowers wish to
install $2,000 worth of energy-efficient (EE) improvements that have
a useful life of 7 years and will save $35 in monthly utility costs.
The borrowers, closing costs total $1,200, including $200 of the $250
charge for the HERS inspection report. The interest rate on the
mortgage is 8.00%
$60,000 Sales Price $60,000 Ap. Value
+ 1,200 Closing Costs x97.75% Max. LTV
_______ _______
$61,200 Mortgage Basis $58,650 Max Loan
x97/95% Maximum Loan-to-Value Ratio
_______
$58,640 Loan Amount (before UFMIP)
$2,000 Installed Cost of EE Improvements
7 Years Expected Life of Improvements
$35 Expected Monthly Savings
$420 Expected Yearly Savings
5.206 Present Value Factor (8% Interest Rate @ 7 Years)
$2,186 EE Premium (5.206PV x $420 Annual Savings)
Since the present value of the energy savings over the expected
life of the improvements (the EE premium) is greater than the
installed cost of the improvements, the entire cost of the
improvements may be added to the mortgage amount (as shown
below):
$58,640 Mortgage Amount from above
+ 2,000 Installed Cost of EE Items
_______
$60,640 Mortgage Amount with Installed EE Items
_____________________________________________________________________
Example 2.
The existing property sold for $60,000. The borrowers wish to
install $3,000 worth of energy-efficient (EE) improvements that have
a useful life of 10 years and will save $40 in monthly utility costs.
The borrowers, closing costs total $1,200, including $200 of the $250
charge for the HERS inspection report. The interest rate on the
mortgage is 8.00%
$60,000 Sales Price $60,000 Ap. Value
+ 1,200 Closing Costs x97.75% Max. LTV
_______ _______
$61,200 Mortgage Basis $58,650 Max. Loan
x97/95% Maximum Loan-to-Value Ratio
_______
$58,640 Loan Amount (before UFMIP)
$3,000 Installed cost of EE Improvements
10 Years Expected Life of Improvements
$40 Expected Monthly Savings
$480 Expected Yearly Savings
6.710 Present Value Factor (8% Interest Rate @ 10 Years)
$3,220 EE Premium (6.710pv x $480 Annual Savings)
Since the present value of the energy savings over the
expected life of the improvements (the EE premium) is greater
than the installed cost of the improvements, the entire cost
of the improvements may be added to the mortgage amount (as
shown below):
$58,640 Mortgage Amount from above
+ 3,000 Installed cost of EE Items
_______
$61,640 Mortgage Amount with Installed EE Items
Example 3.
The existing property sold for $60,000. The borrowers wish to
install $2,500 worth of energy-efficient (EE) improvements that have
a useful life of 7 years and will save $35 in monthly utility costs.
The borrowers, closing costs total $1,200, including $200 of the $250
charge for the HERS inspection report. The interest rate on the
mortgage is 8.00%
$60,000 Sales Price $60,000 Ap. Value
+ 1,200 Closing Costs x97.75% Max. LTV
_______ _______
$61,200 Mortgage Basis $58,650 Max. Loan
x97/95% Maximum Loan-to-Value Ratio
_______
$58,640 Loan Amount (before UFMIP)
$2,500 Installed Cost of EE Improvements
7 Years Expected Life of Improvements
$35 Expected Monthly Savings
$420 Expected Yearly Savings
5.206 Present Value Factor (8% Interest Rate @ 7 Years)
$2,186 EE Premium (5.206PV x $420 Annual Savings)
Since the present value of the energy savings over the
expected life of the improvements (the EE premium) DO NOT
exceed the installed cost of the improvements, the cost of the
improvements are not eligible to be added to the mortgage
amount.
_____________________________________________________________________
Example 4.
The existing property sold for $60,000. The borrowers wish to
install $5,000 worth of energy-efficient (EE) improvements that have
a useful life of 30 years and will save $40 in monthly utility
costs. The borrowers, closing costs total $2,500, including $200 of
the $250 charge for the HERS inspection report. The interest rate
on the mortgage is 7.50%
$60,000 Sales Price $60,000 Ap. Value
+ 2,500 Closing Costs x97.75% Max LTV
_______ _______
$62,500 Mortgage Basis *$58,650 Max Loan
x97/95% Maximum Loan-to-Value Ratio
_______
$59,875 Loan Amount (before UFMIP)
* Because of the 97.75% limitation applied to the appraised
value excluding closing costs, the maximum insurable loan
before UFMIP is $58,650.
$5,000 Installed Cost of EE Improvements
30 Years Expected Life of Improvements
$40 Expected Monthly Savings
$480 Expected Yearly Savings
11.810 Present Value Factor (7.5% Interest @ 30 Years)
$5,668 EE Premium (11.810PV x $480 Annual Savings)
Since the present value of the energy savings over the
expected life of the improvements (the EE premium) is greater
than the installed cost of the improvements, $4,000 of the
improvements may be added to the mortgage amount (as shown
below). Only $4,000 of the improvements may be added to the
mortgage because of the limit on the amount of EE premium that
can be added to the mortgage. See paragraph IB of the
mortgagee Letter:
$58,650 Mortgage Amount from above
+ 4,000 Installed Cost of EE Items
_______
$62,650 Mortgage Amount with Installed EE Items
Example 5.
The existing property sold for $60,000. The borrowers wish to
install $3,000 worth of energy-efficient (EE) improvements that have
a useful life of 10 years, has average maintenance costs of $25 per
year, and will save $45 in monthly utility costs. The borrowers,
closing costs total $1,200, including $200 of the $250 charge for
the HERS inspection report. The interest rate on the mortgage is
8.00%
$60,000 Sales Price $60,000 Ap. Value
+ 1,200 Closing Costs x97.75% Max. LTV
_______ _______
$61,200 Mortgage Basis $58,650 Max. Loan
x97/95% Maximum Loan-to-Value Ratio
_______
$58,640 Loan Amount (before UFMIP)
$3,000 Installed Cost of EE Improvements
10 Years Expected Life of Improvements
$45 Expected Monthly Savings
$515 Expected Yearly Savings ($540-$25 maintenance costs)
6.710 Present Value Factor (8% Interest Rate @ 10 Years)
$3,456 EE Premium (6.710PV x $515 Annual Savings)
Since the present value of the energy savings (not of
maintenance costs) over the expected life of the improvements
(the EE premium) is greater than the installed cost of the
improvements, the entire cost of the improvements may be added
to the mortgage amount (as shown below):
$58,640 Mortgage Amount from above
+ 3,000 Installed Cost of EE Items
_______
$61,640 Mortgage Amount with Installed EE Items
_____________________________________________________________________
Example 6.
The maximum mortgage limit for the area is $151,725. The existing
property sold for $155,000. The borrowers wish to install $10,000
worth of energy-efficient (EE) improvements that have a useful life
of 30 years and will save $75 in monthly utility costs. The
borrowers, closing costs total $5,000, including $200 of the $500
charge for the HERS inspection report. The property was valued at
$155,000. The interest rate on the mortgage is 8.00%
$155,000 Sales Price $155,000 Ap. Value
+ 5,000 Closing Costs x97.75% Max LTV
________ ________
$160,000 Mortgage Basis $151,512
x97/95/90 Maximum Loan-to-Value Ratio
________
$150,750 Loan Amount (before UFMIP)
$10,000 Installed Cost of EE Improvements
30 Years Expected Life of Improvements
$75 Expected Monthly Savings
$900 Expected Yearly Savings
11.258 Present Value Factor (8% Interest Rate @ 30 Years)
$10,132 EE Premium (11.258PV x $900 Annual Savings)
Although the present value of the energy savings over the
expected life of the improvements (the EE premium) is greater
than the installed cost of the improvements, the amount that
may be added to the mortgage amount is limited to the lowest
of the cost of improvements, $8,000 or 5% of the appraised
value (as shown below):
$150,750 Mortgage Amount from above
+ 7,750 Lowest of installed cost ($10,000), $8,000
limit, or 5% of appraised value of $155,000
($7,750)
________
$158,500 Mortgage Amount with Installed EE items
Also note that the mortgage amount permitted exceeds the
statutory limit for the area of $151,725 because of the amount
of the EE items.
Example 7.
The existing conventional loan is being refinanced to a HUD-insured
mortgage. The borrower owes $60,000 and wishes to install $2,500
worth of energy-efficient (EE) improvements that have a useful life
of 10 years and will save $35 in monthly utility costs. The
property was appraised for $65,000 and the borrower's closing costs
including discount points total $2,500, including $200 of the $250
charge for the HERS inspection report. The interest rate on the
mortgage is 8.00%
$60,000 Unpaid Principal Balance $65,000 Ap. Value
+ 2,500 Closing Costs + 2,500 C. Costs
_______ _______
$62,500 Maximum Mortgage $67,500 Mort Basis
x97/95% Max LTV
$64,625 Loan Amount
$2,500 Installed Cost of EE Improvements
10 Years Expected Life of Improvements
$35 Expected Monthly Savings
$420 Expected Yearly Savings
6.710 Present Value Factor (8% Interest Rate @ 10 Years)
$2,818 EE Premium (6.710PV x $420 Annual Savings)
Since the present value of the energy savings over the
expected life of the improvements (the EE premium) is greater
than the installed cost of the improvements, the entire cost
of the improvements may be added to the mortgage amount (as
shown below):
$62,500 Mortgage Amount from above
+ 2,500 Installed Cost of EE items
_______
$65,000 Mortgage Amount with Installed EE Items
_____________________________________________________________________
Example 8.
The existing property is being streamline refinanced without an
appraisal from a 12% interest rate mortgage to a 8% interest rate.
The borrower owes $60,000 (of an original debt of $61,500) and
wishes to install $2,500 worth of energy-efficient (EE) improvements
that have a useful life of 10 years and will save $35 in monthly
utility costs.
$60,000 Unpaid Principal Balance (Loan excluding MIP cannot
exceed this amount; no closing costs may be financed.)
$2,500 Installed Cost of EE Improvements
10 Years Expected Life of Improvements
$35 Expected Monthly Savings
$420 Expected Yearly Savings
6.710 Present Value Factor (8% Interest Rate @ 10 Years)
$2,818 EE Premium (6.710PV x $420 Annual Savings)
Since the present value of the energy savings over the
expected life of the improvements (the EE premium) is greater
than the installed cost of the improvements, the entire cost
of the improvements may be added to the mortgage amount (as
shown below) provided that the principal and interest of the
new mortgage with the energy efficient items added is less
than the P&I of the mortgage being refinanced:
$60,000 Mortgage Amount from above
+ 2,500 Installed Cost of EE Items
_______
$62,500 Mortgage Amount with Installed EE Items
Compare: P&I for $61,500 @ 12% = $633
P&I for $62,500 & 8% = $458
Since even with the inclusion of the energy efficient
items into the new mortgage amount there is a reduction
to the borrowers monthly principal and interest payment,
the installed cost may be added to the insurable
mortgage.
_____________________________________________________________________
Attachment B
ENERGY EFFICIENT MORTGAGE WORKSHEET
STEP 1: QUALIFYING THE BORROWER
The borrower must be qualified for the mortgage amount before adding the
cost of energy efficient improvements to the mortgage. To show that the
borrower qualified for the mortgage amount, show the borrower qualifying
ratios on the mortgage by completing the worksheet below.
1. Enter the amount from line 14g of the HUD 92900-WS $__________
2. Estimated upfront MIP for amount on line 1, above. $__________
3. Sum of line 1 and 2, above: $
===========
4. Monthly payments based on mortgage amount from line 3, above.
a) Estimated PITI and monthly MIP $__________
b) Estimated PITI, monthly MIP, and
recurring expenses (total fixed) $__________
5. Qualifying ratios using mortgage amount before adding cost of energy
efficient improvements.
a) Mortgage payment to income ratio _____._____%
b) Total fixed payment to income ratio _____._____%
STEP 2: ADDING THE COST of ENERGY EFFICIENT ITEMS to
THE MORTGAGE AMOUNT
If the borrower is an acceptable credit risk for the mortgage amount
requested before adding the cost of the energy efficient items, complete
the worksheet below to determine if the cost of the energy efficient
improvements may be added to the mortgage amount.
1. Mortgage Interest Rate ______._______%
2. Expected Useful Life __________Years
3. Present Value Factor (from chart) ______._______
_____________________________________________________________________
4. Expected Monthly Savings $____________
x 12
5. Expected yearly savings $
=============
a. Minus expected yearly maintenance $____________
b. =Net Yearly Savings $____________
6. EE Premium (Net Yearly Savings x Present Value Factor)
= (Present Worth of Estimated Savings)
Net YR Savings $___________ x ____________ PV = $ EE
==============
7. Installed Cost $______________
Compare EE Premium to Installed Cost:
8. If EE Premium (line 6) is less than installed cost (line 7), the
energy efficient items may not be financed into the mortgage.
If EE Premium (from line 6) exceeds installed cost (line 7), answer
the following questions to determine the amount that may be added to
the mortgage amount:
Does installed cost (line 7) exceed $4,000? If NO, show installed cost
(line 7) here $___________ and add to base mortgage amount. If YES
(installed cost exceeds $4,000), does installed cost exceed 5 percent
of the appraised value of the property? If NO, show the lesser of
$8,000 or the installed cost (line 7) here $___________ and add to base
mortgage amount. If YES (installed cost exceeds 5 percent of appraised
value), show the lesser of $8,000 or 5 percent of the appraised value
here $___________ and add to the base mortgage amount.
The amount calculated above is the maximum amount that may be added
to the mortgage previously calculated on line 14g of the HUD-92900-WS,
Mortgage Credit Analysis Worksheet. Line 6a, 6b, and 6c of the
analysis worksheet will reflect the addition of the EE premium in the
new mortgage amount. Be certain to identify in the "Remarks" section
of the worksheet why the final mortgage exceeds the line 14g and also
show the revised loan to value ratio and borrower qualifying ratios
for the higher mortgage amount. A copy of this Attachment B must be
attached to the worksheet. The upfront MIP must be calculated on the
mortgage amount including the energy efficient improvements.
_____________________________________________________________________
PRESENT VALUE FACTORS for ENERGY EFFICIENT MORTGAGES
INTEREST P R E S E N T V A L U E F A C T O R S
RATE 7 YEARS 10 YEARS 15 YEARS 30 YEARS
***************************************************************************
4.00% 6.002 8.111 11.118 17.292
4.25% 5.947 8.011 10.927 16.779
4.50% 5.893 7.913 10.740 16.289
4.75% 5.839 7.816 10.557 15.820
5.00% 5.786 7.722 10.380 15.372
5.25% 5.734 7.629 10.206 14.944
5.50% 5.683 7.538 10.038 14.534
5.75% 5.632 7.448 9.873 14.141
6.00% 5.582 7.360 9.712 13.765
6.25% 5.533 7.274 9.556 13.404
6.50% 5.485 7.189 9.403 13.059
6.75% 5.437 7.105 9.253 12.727
7.00% 5.389 7.024 9.108 12.409
7.25% 5.343 6.943 8.966 12.104
7.50% 5.297 6.864 8.827 11.810
7.75% 5.251 6.786 8.692 11.529
8.00% 5.206 6.710 8.559 11.258
8.25% 5.162 6.635 8.430 10.997
8.50% 5.119 6.561 8.304 10.747
8.75% 5.075 6.489 8.181 10.506
9.00% 5.033 6.418 8.061 10.274
9.25% 4.991 6.348 7.943 10.050
9.50% 4.950 6.279 7.828 9.835
9.75% 4.909 6.211 7.716 9.627
10.00% 4.868 6.145 7.606 9.427
10.25% 4.829 6.079 7.499 9.234
10.50% 4.789 6.015 7.394 9.047
10.75% 4.751 5.951 7.291 8.868
11.00% 4.712 5.889 7.191 8.694
11.25% 4.674 5.828 7.093 8.526
11.50% 4.637 5.768 6.997 8.364
11.75% 4.600 5.709 6.903 8.207
12.00% 4.564 5.650 6.811 8.055
12.25% 4.528 5.593 6.721 7.908
12.50% 4.492 5.536 6.633 7.766
12.75% 4.457 5.481 6.547 7.629
13.00% 4.423 5.426 6.462 7.496
13.25% 4.388 5.372 6.380 7.367
13.50% 4.355 5.320 6.299 7.242
13.75% 4.321 5.267 6.220 7.120
14.00% 4.288 5.216 6.142 7.003
14.25% 4.256 5.166 6.066 6.889
14.50% 4.224 5.116 5.992 6.778
14.75% 4.192 5.067 5.919 6.670
_____________________________________________________________________
The following example shows a completed HUD 92900 Mortgage
Credit Analysis Worksheet and an Attachment B for an EEM. In
this case the property is valued at $70,000 and the borrower
wishes to install $2,000 of energy efficient improvements that
have a useful life of 10 years. The energy efficient
improvements will save $30 per month in utility costs, but the
improvements will also have estimated yearly maintenance costs
of $60. The interest rate of the mortgage is 8% for 30 years.
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Attachment B
ENERGY EFFICIENT MORTGAGE WORKSHEET
STEP 1: QUALIFYING THE BORROWER
The borrower must be qualified for the mortgage amount before adding the
cost of energy efficient improvements to the mortgage. To show that the
borrower qualified for the mortgage amount, show the borrower qualifying
ratios on the mortgage by completing the worksheet below.
1. Enter the amount from line 14g of the HUD 92900-WS $ 67,000
2. Estimated upfront MIP for amount on line 1, above. $ 2,010
3. Sum of line 1 and 2, above: $ 69,010
4. Monthly payments based on mortgage amount from line 3, above.
a) Estimated PITI and monthly MIP $ 594
b) Estimated PITI, monthly MIP, and
recurring expenses (total fixed) $ 700
5. Qualifying ratios using mortgage amount before adding cost of energy
efficient improvements.
a) Mortgage payment to income ratio 28.2 %
b) Total fixed payment to income ratio 33.3 %
STEP 2: ADDING THE COST of ENERGY EFFICIENT ITEMS to
THE MORTGAGE AMOUNT
If the borrower is an acceptable credit risk for the mortgage amount
requested before adding the cost of the energy efficient items, complete
the worksheet below to determine if the cost of the energy efficient
improvements may be added to the mortgage amount.
1. Mortgage Interest Rate 8.00 %
2. Expected Useful Life 10 Years
3. Present Value Factor (from chart) 6.710
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4. Expected Monthly Savings $ 30
x 12
5. Expected yearly savings $ 360
a. Minus expected yearly maintenance $ -60
b. =Net Yearly Savings $ 300
6. EE Premium (Net Yearly Savings x Present Value Factor) (Present Worth
of Estimated Savings)
Net YR Savings $ 300 x 6.710 PV = $ 2013 EE
==========
7. Installed Cost $ 2000
Compare EE Premium to Installed Cost:
8. If EE Premium (line 6) is less than installed cost (line 7), the
energy efficient items may not be financed into the mortgage.
If EE Premium (from line 6) exceeds installed cost (line 7), answer
the following questions to determine the amount that may be added to
the mortgage amount:
Does installed cost (line 7) exceed $4,000? If NO, show installed
cost (line 7) here $2000 and add to base mortgage amount. If YES
(installed cost exceeds $4,000), does installed cost exceed 5 percent
of the appraised value of the property? If NO, show the lesser of
$8,000 or the installed cost (line 7) here $ N/A and add to base
mortgage amount. If YES (installed cost exceeds 5 percent of
appraised value), show the lesser of $8,000 or 5 percent of the
appraised value here $ N/A and add to the base mortgage amount
The amount calculated above is the maximum amount that may be added
to the mortgage previously calculated on line 14g of the HUD-92900-WS,
Mortgage Credit Analysis Worksheet. Line 6a, 6b, and 6c of the
analysis worksheet will reflect the addition of the EE premium in the
new mortgage amount. Be certain to identify in the "Remarks" section
of the worksheet why the final mortgage exceeds the line 14g and also
show the revised loan to value ratio and borrower qualifying ratios
for the higher mortgage amount. A copy of this Attachment B must be
attached to the worksheet. The upfront MIP must be calculated on the
mortgage amount including the energy efficient improvements.
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Click Here to Open Mortgage Credit Analysis Worksheet (PDF)
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form HUD-92900-WS (10/92)
ref. handbook 4155.1
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Attachment C
U.S. Department of Housing and Urban Development
ENERGY EFFICIENT MORTGAGE PILOT PROGRAM
Section 513 of the Housing and Community Development Act of 1992
requires the U.S. Department of Housing and Urban Development (HUD) through
the Federal Housing Administration (FHA) to establish a pilot program to
provide mortgage insurance for Energy Efficient Mortgages. The property
you are purchasing or refinancing may be eligible for this pilot program.
The law requires that you be informed of this program and that you
acknowledge by signing this statement that you understand the benefits of
the program.
What is an Energy Efficient Mortgage?
An Energy Efficient Mortgage, or EEM, recognizes the energy savings
of a home. It allows the homebuyer (or homeowner if it is a refinance) to
qualify for a larger mortgage to finance the construction or installation
of improvements to a home that will increase the home's energy efficiency.
Because the home will be more energy efficient after installation of the
energy saving improvements, the family can devote more of its income to the
mortgage payment.
How do I apply for an EEM?
When you apply for your mortgage loan, tell your lender that you are
interested in an EEM. You or the lender must then have the home inspected
and rated by a home energy rating organization. Many utility companies and
other organizations perform these energy inspections and ratings. The home
energy rating organization will determine the energy use of the home and
recommend the improvements that may save energy. For example, the
inspection may show that adding additional insulation, replacing an old
furnace or other similar improvements will increase the energy efficiency
of the home. If these improvements will save you more money than it costs
to install them, then the costs of the improvements (up to certain dollar
limits) may be financed into your mortgage.
Where can I get more information about an EEM?
Ask your real estate broker, mortgage lender, utility company or
state energy office for more information about an EEM.
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Borrower Signature Date
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Borrower Signature Date