Weatherization can be an add-on to an Energy Efficient Mortgage (EEM) when a borrower needs slightly more energy upgrades than the EEM program will allow. Unfortunately, it was not well designed from an operational standpoint. It has gotten to the point that I love the EEM but I cringe when we need to include Weatherization. This program can create so much confusion.
There is a very important distinction between the EEM and the Weatherization Program. 100% of the cost of the EEM may be financed, a down payment is required on the Weatherization Program portion.
The problem is created because HUD designed the guidelines instructing a lender is to add the Weatherization balance to the sales price for calculation purposes only. Unfortunately, this means that Escrow Officers receive paperwork that seems to indicate that there are two different sales prices. On more than one occasion, no matter how carefully I explained this to an Escrow Officer, they actually sent the Weatherization money to the seller at closing. This seems to occur when someone else has the responsibility for closing out the file. It is clear that whoever designed this at HUD had not considered these implications. I always make sure everyone is clear on the problems this is likely to cause and we usually manage to avoid them but you must really stay on top of this with the Escrow Company.
From a technical standpoint: If Weatherization items are to be added to the property, the mortgage amount may be increased by the cost of those items as described below.
Weatherization items include thermostats, insulation, storm windows and doors, weather stripping and caulking, etc. These items may be added to both the sales price and the appraised value before determining the maximum mortgage amounts. (A contractor’s statement of cost of work completed or a buyer’s estimate of the cost of materials must be submitted.) This is normally all part of the EEM paperwork that is done upfront.
The amount that may be added in calculating the maximum mortgage is:
a) $2000 without a separate value determination or
b) Up to $3500 if supported by a value determination by an approved FHA roster appraiser or DE underwriter; or
c) More than $3500 subject to a value determination by an approved or FHA roster appraiser or DE underwriter and a separate on-site inspection made by a FHA – approved fee inspector of DE staff appraiser.
This can be a good alternative when the amount needed is only slightly beyond what can be included in an EEM. Be prepared to follow through with the Escrow Company to make sure that the money is held back. Once this is confirmed after the loan funds, the rest is simple enough.
Sacramento 1st DBA Comstock Mortgage – Lic : 01390474
Kevin Nunn – NMLS 305826 / DRE 01158674
