Overview

Energy-efficient mortgage options (EEMs) are financing tools that add the cost of approved energy upgrades to a home purchase or refinance instead of requiring cash up front. The idea is simple: spread the cost of efficiency improvements across the life of the mortgage so lower energy bills help offset the investment. For official program details see the U.S. Department of Housing and Urban Development (HUD) EEM resources (https://www.hud.gov/program_offices/housing/sfh/eem/eemhome) and general consumer guidance from the Consumer Financial Protection Bureau (https://www.consumerfinance.gov/).

How they work — purchase vs. refinance

  • Purchase: A borrower buying a home can include qualifying upgrade costs in their mortgage when approved by the lender and the program’s rules. The lender typically requires an energy assessment that lists recommended upgrades and projected savings.
  • Refinance: Current homeowners can refinance to fold energy improvements into the new loan amount, using the refinance proceeds to pay for the work.

Key program types

  • FHA Energy Efficient Mortgage: A HUD-backed option that helps borrowers add efficiency costs to an FHA loan. (See our in-depth FHA Energy Efficient Mortgage explainer for program details: https://finhelp.io/glossary/fha-energy-efficient-mortgage/.)
  • VA Energy Efficient Mortgage: Available to eligible veterans through VA-backed programs and may be layered with other VA benefits (details: https://finhelp.io/glossary/va-energy-efficient-mortgage/).
  • Conventional/Private Lenders: Some lenders offer “green” or energy-focused mortgage products that vary by bank and underwriting standards. See lender disclosures for specific caps and requirements.

Eligible improvements and documentation

Typical qualifying work includes insulation, air sealing, efficient windows and doors, high-efficiency HVAC and heat pumps, water heating upgrades, and some solar systems. Lenders usually require:

  • An energy audit or assessment by a qualified professional that estimates projected energy savings.
  • Written contractor bids or invoices for the recommended work.
  • Verification that planned upgrades meet the lender’s efficiency criteria.

Program specifics and limits vary by lender and by program; avoid relying on a fixed dollar cap without checking the latest guidance from HUD, VA, or your lender (HUD provides official program documentation and forms: https://www.hud.gov/sites/dfiles/Housing/documents/EEMOverview.pdf).

Combining with tax credits and incentives

Energy-efficient mortgages can often be used alongside federal and state incentives. For example, homeowners may be eligible for federal energy tax credits for certain equipment. Consult the IRS and the FinHelp guide on federal credits to understand how tax incentives could reduce your net cost: https://finhelp.io/glossary/navigating-federal-tax-credits-for-energy-efficient-home-improvements/.

Practical tips from a mortgage content editor

  • Start with an energy audit: It both identifies the most cost-effective upgrades and provides the documentation lenders want.
  • Talk to lenders early: Ask whether they offer an EEM or green mortgage and what documentation or contractor requirements they impose.
  • Combine incentives: Factor in state rebates, utility programs, and federal tax credits when comparing payback periods.
  • Check appraisal and loan-to-value effects: Adding improvements can change a home’s appraised value and affect loan limits—discuss this with your loan officer.

Common mistakes to avoid

  • Assuming every lender offers EEMs — many do not. Confirm availability before budgeting work.
  • Skipping an energy audit — without one, lenders typically won’t approve the added funds.
  • Counting on immediate savings to fully cover payments — energy savings may take months to accrue and vary by household behavior.

Short FAQs

  • Who qualifies? Buyers and current homeowners can qualify; eligibility rules vary by program and lender. Veterans should check VA-specific benefits.
  • Is an audit required? Usually yes; lenders want an estimate of projected savings and a scope of work.
  • What upgrades qualify? Common items include insulation, efficient HVAC, windows, water heaters and some solar systems; final lists differ by program.

Professional disclaimer

This content is educational and does not substitute for personalized financial, tax, or legal advice. Program requirements and tax incentives change; consult your mortgage lender, a licensed contractor, and official sources (HUD, CFPB, IRS) for guidance specific to your situation.

Authoritative sources

Related FinHelp articles