HUD: Borrowers Who Reduce Utility Bills Will Be Able to Qualify for Bigger FHA Loans

By Susan Jones | August 25, 2015 | 12:06 PM EDT

The number of homes with rooftop solar has grown from fewer than 20,000 to about 600,000 over the past decade or so," President Obama told a Clean Energy Summit in Las Vegas on Monday, Aug. 24, 2015. (AP File Photo)

( - If you save money on your energy bills, you'll be able to afford a bigger mortgage: That's the reasoning behind the Federal Housing Administration's new plan to recognize the reduced cost of utilities in calculating an FHA-insured home purchase or refinance.

Under a new FHA and Energy Department (DOE) partnership announced on Monday, FHA will provide flexible underwriting that takes the home's energy costs into account.

Consumers will qualify for a "slightly" higher loan amount if their home receives an official DOE Home Energy Score of 6 or higher.

The Home Energy Score is described as a low-cost, reliable method for estimating the energy use of a home on a scale of 1 (lowest rating) to 10.

Homebuyers or homeowners who want to obtain an FHA-insured purchase or refinance a mortgage for a single family home that receives a Home Energy Score of 6 or higher will be eligible to increase their income-qualifying ratio by 2 percentage points above the standard single-family FHA limit.

This means that FHA borrowers will be able to borrow slightly more when they buy or refinance a more energy-efficient home.

According to DOE, the average U.S. home will score a “5.” The official DOE-recognized Home Energy Score can only be assessed by a qualified energy assessor. (The Home Energy Score considers the home's age, location, size, insulation -- even the size of the windows and the direction they face.)

DOE says the score is equivalent to a "miles-per-gallon" rating for cars. It plans to release further guidance on the new FHA-DOE program in coming months.

On a related note, President Obama said on Monday his administration is "going to make it even easier for individual homeowners to put solar panels on their roof with no upfront cost." The solar panels will be paid for through a program that calculates future savings on a homeowner's energy bills.

"So we’re taking steps that allow more Americans to join this revolution with no money down," Obama told a Clean Energy Summit in Las Vegas. "You don’t have to share my passion for fighting climate change.  A lot of Americans are going solar and becoming more energy efficient not because they’re tree huggers -- although trees, you know, are important -- (laughter) -- just want you to know -- but because they’re cost-cutters.  They like saving money.  

"And I’m all for a consumer saving money, because that means they can spend it on other stuff.  Solar isn’t just for the green crowd anymore -- it’s for the green eyeshade crowd, too."

Sponsored Links