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Energy Efficient Mortgage Program 

FHA's Energy Efficient Mortgage program (EEM) helps families save money on their utility bills by enabling them to finance energy efficient improvements with their FHA insured mortgage.

The EEM program recognizes that an energy-efficient home will have lower operating costs, making it more affordable for the homeowners.  Cost-effective energy improvements can lower utility bills and make more income available for the mortgage payment.


In 1992, the Department of Housing and Urban Development initiated the Energy Efficient Mortgages (EEMs) as pilot demonstration 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.

Under its EEM program, FHA Insures a borrower’s mortgage used to purchase or refinance a principal residence, and the cost of energy efficient improvements to be made to the home. The borrower need only qualify for the loan amount used to purchase or refinance a home.  The borrower is not required to be qualified on the total loan amount with the portion of loan used to finance energy efficient improvements. Like all FHA insured mortgages, the loan is processed, approved, and funded by a lending institution, such as a mortgage company, bank, or savings and loan association.  After the mortgage closes, FHA insures the loan to protect the lender against loss in the event of payment default.

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 add the upfront mortgage insurance premium to 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.

Energy Package:

The energy package is the set of improvements that the Borrower chooses to make based on the recommendations and analysis performed by a qualified home energy assessor. The improvements can include energy-saving equipment, and active and passive solar and wind technologies. The energy package can include materials, labor, inspections, and the home energy assessment by a qualified energy assessor.

Energy Efficient Improvements Must Be Cost-Effective :

The financed portion of an Energy Package must be cost-effective.  Improvements are cost-effective when the cost of making them is equal to or less than the money saved on energy from those improvements.

  1. Cost Effective Test for Existing Homes

Improvements to existing homes are cost-effective when they pay for themselves over their expected life span with energy dollars saved.  Worded differently, the money saved in energy bills because of an improvement, must add up to the same are greater amount than the cost of making the improvement.

 A qualified home energy assessment will determine whether the improvements are cost effective.

 The assessment evaluates the home’s energy efficiency, and conducts analysis to assess the potential savings  for a variety of improvements.

  1. Cost Effective Test for Newly Constructed Homes

 For newly constructed homes, the improvements are cost effective when they exceed the standards set by the most recent International Energy Conservation Code (IECC) that has been adopted by HUD for new construction properties.  A qualified home energy assessment will determine which improvements exceed the IECC standards.

Home Energy Assessment:

 The Borrower must obtain a home energy assessment. The purpose of the energy assessment is to identify opportunities for improving the energy efficiency of the home and their cost-effectiveness.

 The assessment must be conducted by a qualified energy rater, assessor, or auditor using whole-home assessment standards, protocols and procedures.  Qualified home energy raters/assessors must be trained and certified as one of the following:

  • Building Performance Institute Building Analyst Professional
  • Building Performance Institute Home Energy Professional Energy Auditor
  • Residential Energy Services Network Home Energy Rater

How Much of an Energy Package can Be Financed? 

 The maximum amount of the energy package that can be added to the borrower’s regular FHA loan amount is the lesser of:

  • A cost-effective improvements to be made (energy package) based on the home energy assessment; or
  • the lesser of 5 percent of:
    • the Adjusted Value;
    • 115 percent of the median area price of a Single Family dwelling; or
    • 150 percent of the national conforming mortgage limit.

An FHA-approved lender can access FHA’s EEM Calculator to determine the dollar maximum amount that a borrower can finance for energy improvements.

Complementary Energy-Related Programs and Policies: 

  1. Section 203k Rehabilitation Mortgage

EEM may be combined with any FHA Title II mortgage, including the Section 203(k) Rehabilitation Mortgage Insurance program.  The 203(k) program allows borrowers to finance a variety of home improvements, repair or modernization projects.   An Energy Package from an EEM can be layered on top of the improvements to be made under the 203(k) program.

  1. Energy Efficient Homes (EEH)

When the home being financed meets minimum energy efficient standards, FHA permits the borrower’s qualifying ratios to be “stretched” by two percentage points above the standard limits.  This stretch recognizes energy savings, and allows a borrower to qualify for a higher loan amount.  The stretch ratios permitted for an Energy Efficient Home may be used with any FHA insurance Title II program, including Energy Efficient Mortgages, and Section 203(k) Rehabilitation Mortgages.

  1. Solar and Wind Technologies

Under FHA’s Solar and Wind Technologies policy, borrower can have a higher mortgage amount in order to pay for the cost and installation of new solar or wind energy system.  A new solar or wind system must be installed at the time of home purchase or refinance.

  1. Weatherization

FHA’s Weatherization policy allows borrowers to finance up to $3,500 to pay for basic weatherization items, such as thermostats and insulation.

How to Get an EEM:

To apply for an FHA insured energy efficient mortgage, contact an FHA approved lender.

For More Information:

Visit the FHA Resource Centerto search the FAQs, ask a question or send an email.