New HUD Energy Efficiency Standards Helps More Qualified Buyers

Filed in Housing Finance by on October 1, 2015 0 Comments

greenhouse3The Federal Housing Administration on Sept. 30 published Mortgagee Letter 2015-22, which will allow more borrowers to qualify for homes that meet updated energy efficient standards.

The FHA letter updates the agency’s Energy Efficient Homes (EEH) minimum energy-efficiency standard to the most recent International Energy Conservation Code adopted by HUD for mortgages on new construction.

The new option builds on FHA’s existing EEH program, which allows for a borrower’s income qualifying ratios to be “stretched,” or increased, by two percentage points above the standard limits for homes that meet minimum energy efficiency standards.

For standard FHA loans, debt-to-income ratios are limited to 31% (front-end) and 43% (back-end). Under FHA policy for the EEH mortgage, these debt-to-income ratios can be increased to 33% and 45%, respectively.

FHA’s EEH stretch ratios can be applied across FHA’s Title II forward mortgage products and programs, including its existing energy efficiency options toolkit of products:

  • The Energy Efficient Mortgage Program, which allows borrowers to finance up to 5% of the appraised value of a home to invest in energy efficiency improvements, as long as the energy savings is more than the cost of the improvements financed.
  • The 203(k) Rehabilitation Mortgage Insurance Program, which allows borrowers to purchase or refinance a home and include the financing of rehabilitation costs – all in one loan.
  • Solar and wind technologies policies, which allow borrowers to add the cost of a new solar or wind-driven energy system improvement to the loan amount under certain conditions.
  • Weatherization policy in all FHA standard products and programs, which allows borrowers to finance up to $3,500 to pay for basic weatherization items, such as thermostats and insulation.

For more information, contact Steve Linville at 800-368-5242 x8597.

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