A home with an FHA energy efficient mortgage

FHA Energy Efficient Mortgage

The FHA Energy Efficient Mortgage is a great energy savings loan program for refinancing a current mortgage or buying a home. Every year, thousands of California homeowners seek a mortgage solution that will improve their homes’ energy efficiency. The FHA Energy Efficient Mortgage provides homeowners with a realistic solution with straightforward requirements and clear benefits.

What is an FHA Energy Efficient Mortgage?

An FHA Energy Efficient Mortgage (FHA-EEM) is a loan program that helps California homeowners improve the energy efficiency of their homes so that they can lower their monthly utility costs. A homeowner can obtain an FHA-EEM by refinancing their current mortgage, and a homebuyer can buy a home using the FHA-EEM loan program.

An FHA Energy Efficient Mortgage is one of the more popular FHA home loan products available.

How do you get an FHA Energy Efficient Mortgage?

Contact a bank, lender, or mortgage broker offering FHA home loan products. You’ll complete the standard loan application and provide the necessary documentation to process your loan application.

Do You have a question or need a quote?

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FHA Energy Efficient Mortgage requirements

California homeowners and homebuyers should know the FHA Energy Efficient Mortgage requirements before applying to the loan program. Here is a broad overview of those requirements.

  • A 3.50% investment into the property is required. This means if you are refinancing a mortgage into an FHA-EEM loan program, you must have at least 3.50% equity in the home post-closing. If you are buying a home, this means you must put down a down payment of 3.50%.
  • Anticipated work must improve the energy efficiency of the home. That includes energy-saving equipment and active and passive solar and wind technologies1.
  • The borrower must hire a “Home Energy Assessor” to complete a home energy assessment. The assessor will review the work to be done and evaluate its impact on the home’s energy efficiency and cost savings.
  • The improvements must be cost-effective. This means the cost of the improvements can’t exceed the energy savings during the lifetime of the improvement2 (more on this below).
  • The applicant must use the 15-year or 30-year fixed-rate loan term when obtaining an FHA-EEM; however, an ARM loan option can be used under certain circumstances.

All loan applicants seeking a FHA-EEM must follow and adhere to the above requirements.

Cost-Effective Improvements

The FHA-EEM program does not allow you to spend money on just any improvements. As mentioned above, the improvements must be cost-effective. Here are the requirements that an underwriter will follow when determining if the proposed work to be done is cost-effective.

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.

The cost-effective component of the FHA-EEM program is an important detail that all homeowners and homebuyers should be aware of and review before hiring a Home Energy Assessor.

Before moving forward with an FHA-EEM loan application, talk with your loan officer about your proposed improvements and how the cost-effective requirement might impact your loan application.

FHA Energy Efficient Mortgage benefits

These are the benefits of the FHA Energy Efficient Mortgage to homeowners and homebuyers throughout California.

  • The borrower only needs to qualify for the primary loan amount. This means the cost of the energy efficiency improvements does not impact loan approval. This simplified approach enables the underwriter to approve more loan applications.
  • You’ll have new equipment which will improve the value of your home.
  • A reduction in your home’s energy.
  • Monthly/yearly monetary savings from the reduction in energy usage.

The benefits of the FHA-EEM program are clear. Qualification for the loan program is simplified so that more loan applicants can be approved for the program. The new equipment adds value to the home, you’ll see a drop in energy usage, and your monthly utility bill will be lower.

Examples of what can be done

Here are some examples of what can be done under the FHA Energy Efficient Mortgage loan program.

  • Active or passive solar energy improvements
  • Active or passive wind energy improvements
  • New appliances
    • Refrigerator
    • Washer and dryer
    • Dishwasher
  • A new high-efficiency furnace
  • Heat pumps
  • Water heater
  • Home insulation
    • Attic
    • Walls
    • Floors
  • Certain roofing improvements
  • Weatherization improvements

Examples of the work to be done under the FHA Energy Efficient Mortgage loan program are meant as a guide. Please consult with your loan officer and Home Energy Assessor for specific details on what qualifies under the program.

Do You have a question or need a quote?

Contact Kevin

Low rates, fast closings, and exceptional service.

FHA Energy Efficient Mortgage common questions

Here are some Frequently Asked Questions (FAQs) about the FHA-EEM loan program.

Is there a tax benefit to improving the FHA-EEM loan program?

Possibly! The first step to confirming any possible tax benefits under the FHA-EEM loan program is to contact your Certified Public Accountant (CPA) or tax preparer. Tax laws can change, so contacting your tax professional is the best way to confirm potential tax benefits.

Are there alternatives to the FHA-EEM loan program?

Yes, there are several loan program options that are alternatives to the FHA-EEM loan program. The main options are a cash-out refinance or a Home Equity Line of Credit (HELOC).

An additional option includes the FHA 203(k) renovation loan, which does not require a home energy assessment and does not have the cost-effective requirement of the FHA-EEM loan program.

Lastly, a loan applicant can also consider using a credit card and/or obtaining a personal loan.

Do all lenders offer the FHA-EEM loan program?

No. Only select lenders offer the program. Be sure to confirm with your loan officer that they are approved to process a loan application under the FHA-EEM loan program.

FHA Energy Efficient Mortgage – bottom line

As you can see, the FHA Energy Efficient Mortgage is an excellent option for California homeowners and homebuyers. It allows loan applicants to implement energy-saving solutions to their homes. These improvements can increase the value of the home and lower your monthly utility expense.

If you are interested in reviewing your options and qualifying for the FHA-EEM loan program, be sure to contact me directly for a free evaluation.


  1. Energy Efficient Mortgage Program – HUD.gov
  2. FHA Energy Efficient Mortgage Fact Sheet – EnergyStar.gov
Loan Officer Kevin O'Connor

About The Author

Loan Officer Kevin O'Connor has over 17 years of experience as a Mortgage Loan Originator and is a trusted resource for mortgage education and information. He's the content creator of K.O. Home Loan Solutions and is licensed by the state of California and the Nationwide Mortgage Licensing System. He has a top rating with the Better Business Bureau, Google, Yelp, and Zillow. You can contact him at 1-800-550-5538. CA DRE #01499872 / NMLS #247447