The Energy Efficient Mortgage, commonly known as the EEM, is perhaps the Best Kept Home Loan Secret.

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This program was originally developed by HUD in 1993, and recognized as a 50 state program in 1995.

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Although it has been available to all FHA & VA borrowers for decades, it is often overlooked in the rush and shuffle of an Escrow. In fact, these borrowers don't even need to credit qualify, and there is no appaisal of improvements.

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The most common application of the EEM is on an FHA purchase or refinance event. The borrower is "entitled" to add roughly 5% of the property's value to the mortgage in order to do "cost effective" residential energy improvements.

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The brilliance of the program's designers is exemplified by the words "cost effective," meaning, simply, that the addition funds added to the loan must be offset by a present value of the improvements greater the their cost. Put another way, the increase in the monthly payment must be less the the savings on the monthly utility costs.

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This comparison is done using a HERS report and Certificate which compares the utility load on the home as is and with improvements.

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An example would be, the home has old single paned windows and changing them out with new High Performance dual pane units is calculated to save $864 annually  The cost of changing the windows is $8,950, equally a monthly increase in the house payment of approx. $45, which is offset by an average monthly savings of $72.

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The new home owner is spending $45 to save $72, and in the case of a fixed rate mortgage, the $45 amount is static. Whereas the utility savings will likely increase over time as utility rates go up.

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