Consequences of an Energy Efficient FHA Mortgage

An energy efficient FHA mortgage is designed to assist homeowners with energy efficient upgrades to single family properties that can reduce utility bills. There are, however, some consequences to consider before applying for an energy efficient FHA mortgage.

An increased loan amount

Normally, about 95-97% of the appraised value of the home is expected to be covered by an FHA loan. The cost of proposed energy efficient upgrades will be added to the base loan, provided that the cost is less than the dollar amount that can potentially be saved on energy costs. This amount will be added to the total loan amount.

Interest charges

Since the upgrades are added to the total loan amount, interest charges will have to be paid. While there may not be a significant raise in your monthly payments, perhaps only about $15, the interest on the cost of the upgrades may eventually double the original cost of the upgrades. The extra $4,000 or so added to your original mortgage amortized over 30 years can add a few thousand dollars in interest paid. That means that you may end up paying for your energy upgrades twice, unless you prepay this amount on your mortgage.

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