When purchasing or refinancing a home through a VA loan, eligible veterans and service members can use a VA Energy Efficient Mortgage (EEM) to finance energy-saving improvements as part of their mortgage. This option helps to lower monthly utility bills by enabling energy upgrades without requiring a separate loan. The total cost of qualifying improvements is added to the VA loan amount, typically resulting in a small increase in mortgage payments but greater savings in utilities over time.
How Does a VA Energy Efficient Mortgage Work?
To qualify, veterans must first be approved for a VA purchase or refinance loan. Then, an energy audit by a VA-approved consultant is conducted to assess and recommend cost-effective upgrades that will reduce energy use and utility costs. The lender reviews the audit to ensure the projected savings exceed the added mortgage costs. Once approved, the cost of the improvements is included in the loan. After closing, funds are held in escrow while the work is completed and inspected.
Eligible Energy Efficiency Improvements
The VA permits various upgrades designed to improve a home’s efficiency. These include:
- Solar heating and cooling systems
- Programmable thermostats
- Weatherization measures like caulking and weather-stripping
- Energy-efficient windows and doors
- Enhanced insulation for attics, ceilings, and floors
- Heat pump installations
- Vapor barriers
Loan Limits and Cost-Effectiveness
The VA imposes guidelines based on improvement costs:
- Up to $3,000: Lenders require documented cost estimates.
- $3,001 to $6,000: Improvements must be certified as cost-effective, meaning savings exceed payment increases.
- Above $6,000: Requires additional lender verification that home value will increase by the improvement cost.
For example, a $5,000 upgrade raising monthly payments by $25 must save more than $25 monthly on energy bills.
Important Considerations
Veterans should avoid skipping the formal energy audit, which is mandatory for EEM approval. Gathering multiple contractor bids helps secure fair pricing. Also, not all VA lenders offer EEMs, so working with an experienced lender is key.
FAQs
Can a VA EEM be used with refinancing? Yes, it applies to VA Interest Rate Reduction Refinance Loans (IRRRLs) and cash-out refinances.
Does an EEM affect the VA funding fee? The fee is based on the total loan amount, so it increases slightly with an EEM but is offset by energy savings over time.
How is a VA EEM different from an FHA EEM? Both finance energy improvements but have distinct eligibility, loan limits, and rules under different agencies.
For more details on VA home loans, visit the official VA Energy Efficient Mortgage page. To understand broader energy-efficient financing options, see our article on Green Mortgage.