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Stylized Text: Home Energy Ratings.

Financing Energy Efficiency: An EEM Handbook


Chapter 37
Credit Underwriting


Monthly debt payment-to-income ratio


Note: If all or any portion of the proceeds of the Mortgage are being used to pay off or pay down existing debts in order to qualify for the Mortgage, the Seller must document such payoff in the Mortgage file. Canceled checks, paid receipts and/or a copy of the HUD-1 or other closing statement may be used to document the repayment. 

As a guideline, the monthly debt payment should not be greater than 33 percent to 36 percent of the Borrower's stable monthly income.

A higher monthly payment ratio may be appropriate in some cases. Examples of conditions that could justify a higher ratio are:

  1. An energy efficient property that reduces energy costs (See the paragraph at the end of this section.) 
  2. The demonstrated ability of the Borrower to devote a greater portion of income to basic needs, such as housing expense 
  3. The demonstrated ability of the Borrower to maintain a good credit history, accumulate savings and maintain a debt-free position 
  4. A large down payment on the purchase of the property 
  5. The Borrower's probability for increased earnings based on education, job training or time employed or practiced in a profession 
  6. The Borrower's net worth being substantial enough to evidence an ability to repay the Mortgage regardless of income 
  7. Rent paid by extended family members living in the house (may not be considered as stable monthly income but may justify slightly higher monthly payment ratios) 
  8. The existence of verified income that is not included within the definition of "stable monthly income" in Section 37.8 when there is an expectation that future expenses will be lower (such as child-support income that is scheduled to cease in one year when a child becomes an adult. In this case, the expectation would be that either future household expenses will be lower or that additional income will be provided by the new adult.) 
  9. The demonstrated ability of the Borrower to carry a higher debt level and maintain a good credit history 
If these or any other conditions are considered, the Seller must prepare and retain in the Mortgage file a written explanation supporting its decision to exceed either ratio guideline set forth in Sections 37.6 and 37.7. For example, in order to demonstrate the Borrower's ability to devote a greater portion of income to housing expenses, the Seller may explain a higher housing expense ratio by noting that the Borrower's previous housing expense was 33 percent of gross monthly income and the file documentation evidences that.
  • The Borrower made timely payments at that level for at least one year 
  • The Borrower's present gross monthly income is at least equal to that received during the past year 
  • The Borrower has not incurred any other significant debts within the past year (see also Section 46.9) 

If the property is energy-efficient or contains energy-efficient items (see Section 44.11), higher income ratios may be appropriate. In its underwriting analysis, the Seller should consider the impact utility charges have on the Borrower's ability to meet the monthly housing expense and properly maintain the property. An energy-efficient property results in lower utility charges, allowing the owner to apply more income to housing expense. In such circumstances, higher ratios could be appropriate. If higher ratios are used, the Seller must provide in the Mortgage file the calculation and source documentation used to derive the dollar offset allowed due to lower utility charges. Source documentation may be:

  • The appraisal report indicating the energy efficiency of the property, or 
  • Form 70A, Energy Addendum (Residential Appraisal Report), or 
  • An established home energy rating system (HERS) 


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