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Stylized Text: Home Energy Ratings.

Financing Energy Efficiency: An EEM Handbook



Section 221 - Energy Improvement Mortgages

Fannie Mae
Selling Part V Mortgage Eligibility
2 - Conventional Mortgages
221 - Energy Improvement Mortgages 
Pg 567 - 568

We will purchase or securitize first mortgages that finance the purchase and energy improvement of one- to four-family properties. Properties may be older residences that will be retrofitted or new homes that will be upgraded with energy-saving features.

Lenders may include the actual cost of the improvements in the purchase price of the property-up to a amount that equals 15% of the property's value. The value of the property will be defined as the lower of

  • the actual purchase price plus the cost of the energy improvements, or
  • the "as completed" value of the property.
The lender may deliver the mortgage before the energy improvements are completed. At closing, the lender must disburse funds into an escrow account to cover the cost of the improvements. The lender must manage the escrow account and take steps to ensure that all improvements are completed within 120 day of loan closing. Once all improvements have been completed, the lender must inspect the property. The loan file should be documented to indicate that all improvements have been completed as required. It the work is not completed within the allowable time period, the lender must either
  • repurchase the mortgage (or, it is in an MBS pool, substitute a qualified mortgage for it);
  • close the account and apply the remaining funds to the principal balance of the mortgage if the work has not started; or
  • take action to complete the energy retrofitting or upgrading within 60 days if the work has started. It the improvements are not completed by the end of the 60-day extension period, the lender must repurchase the mortgage (or substitute a qualified mortgage for it, if the mortgage is in the MSB pool).
The energy savings can be considered in underwriting the borrower's credit and financial ability.

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