The VA Energy Efficient Mortgage (EEM) program helps veterans and service members finance energy-saving home improvements as part of their VA home loan. This program allows you to include the cost of energy-efficient upgrades in your mortgage, making it easier to reduce utility costs while improving your home's comfort and value.
What Is a VA Energy Efficient Mortgage?
A VA EEM allows you to finance energy-efficient improvements when purchasing a home or refinancing your existing VA loan. The program adds the cost of approved energy upgrades to your loan amount, eliminating the need for separate financing or upfront cash for these improvements.
How it works. When you purchase or refinance a home, you can increase your loan amount by up to the lesser of $6,000 or the increase in value created by the energy-efficient improvements. For upgrades costing more than $6,000, you'll need a professional energy audit demonstrating that the improvements will pay for themselves through utility savings within a reasonable timeframe.
Integration with your VA loan. The energy-efficient improvement costs become part of your total loan amount. You don't need a separate loan or additional approval process beyond your standard VA loan qualification.
Benefits of VA Energy Efficient Mortgages
Reduced utility costs. Energy-efficient improvements directly lower your monthly utility bills. Better insulation, efficient HVAC systems, solar panels, and energy-efficient windows can reduce heating and cooling costs by 20% to 50%, depending on your current home condition and the improvements made.
No additional down payment. The cost of energy-efficient improvements doesn't require additional down payment. If you're using a VA loan with zero down payment, you can still add energy-efficient improvement costs without increasing your upfront cash requirement.
Increased home value. Energy-efficient homes typically sell for more than comparable homes without these features. Buyers increasingly prioritize energy efficiency, making your home more attractive when you eventually sell.
Improved comfort. Energy-efficient improvements often provide better temperature control, improved air quality, and reduced noise. These benefits enhance your daily living experience beyond just financial savings.
Environmental impact. Reducing your home's energy consumption decreases your carbon footprint and contributes to environmental sustainability.
Eligible Energy-Efficient Improvements
The VA approves various improvements that enhance energy efficiency:
Insulation upgrades. Adding or improving insulation in attics, walls, floors, and crawl spaces reduces heat transfer, lowering heating and cooling costs.
Heating and cooling systems. Energy-efficient furnaces, air conditioners, heat pumps, and programmable thermostats reduce energy consumption while maintaining comfort.
Solar energy systems. Solar panels, solar water heaters, and solar space heating systems generate renewable energy, significantly reducing or eliminating electric bills.
Windows and doors. Energy-efficient windows with low-E coatings, double or triple panes, and insulated frames reduce heat transfer. Energy-efficient doors with proper sealing provide similar benefits.
Water heaters. High-efficiency water heaters or tankless systems reduce energy used for water heating, which typically accounts for 15% to 25% of home energy use.
Weatherization. Sealing air leaks, adding weather stripping, and caulking gaps prevent conditioned air from escaping and outside air from entering.
Renewable energy systems. Wind turbines, geothermal heating systems, and other renewable energy technologies may qualify if they demonstrate cost-effectiveness.
Eligibility Requirements
Standard VA loan eligibility. You must meet all standard VA loan eligibility requirements, including minimum service requirements, obtaining a Certificate of Eligibility, and meeting credit and income standards.
Cost-effectiveness requirement. The improvements must be cost-effective, meaning the total cost doesn't exceed the present value of energy savings over the improvement's useful life. For improvements costing more than $6,000, a professional energy audit must demonstrate this cost-effectiveness.
Property requirements. The property must meet all standard VA loan property requirements, including Minimum Property Requirements (MPRs). Energy-efficient improvements can't substitute for required repairs to meet MPRs.
Contractor qualifications. Contractors performing energy-efficient improvements should have appropriate licensing and expertise. Some improvements, particularly solar installations, require specialized knowledge and certifications.
Loan Amount Limits for Energy Improvements
Up to $6,000 without audit. You can add up to $6,000 for energy-efficient improvements without requiring a formal energy audit, though the improvements must still be reasonable and appropriate.
Above $6,000 with audit. For improvements costing more than $6,000, you need a professional energy audit by a qualified energy consultant. The audit must show that the energy savings will exceed the cost of improvements over their useful life.
Maximum increase. The total loan amount increase for energy-efficient improvements cannot exceed the lesser of the cost of improvements or the increase in home value they create.
Integration with VA loan limits. Energy-efficient improvement costs don't count against standard VA loan limits. If you have full VA entitlement, you can typically borrow up to the conforming loan limit plus the cost of energy-efficient improvements without a down payment.
The Energy Audit Process
For improvements exceeding $6,000, an energy audit provides detailed analysis of your home's current energy use and the projected savings from proposed improvements.
Selecting an auditor. Choose a qualified energy auditor with appropriate certifications, such as a Certified Energy Auditor or Building Performance Institute certification.
Audit components. The audit includes a comprehensive home inspection, blower door test to identify air leaks, thermographic inspection to detect insulation gaps, review of utility bills, and analysis of proposed improvements with projected savings.
Cost-effectiveness analysis. The auditor calculates whether proposed improvements will pay for themselves through utility savings over their expected lifespan. Lenders use this analysis to determine how much they can add to your loan.
Audit costs. Energy audits typically cost $300 to $700. You can sometimes include this cost in your energy-efficient improvement financing.
Application Process
Get pre-approved for a VA loan. Start with standard VA loan pre-approval to understand your base borrowing capacity and establish your eligibility.
Identify desired improvements. Work with energy consultants or contractors to identify which improvements would benefit your home most. Consider both cost and energy savings potential.
Obtain cost estimates. Get detailed written estimates from qualified contractors for all proposed improvements. These estimates should itemize materials, labor, and expected completion timelines.
Complete energy audit if needed. For improvements exceeding $6,000, schedule and complete a professional energy audit. Provide the audit report to your lender.
Submit loan application. Apply for your VA loan, including documentation of planned energy-efficient improvements, cost estimates, and energy audit results if applicable.
Appraisal process. The VA appraiser will review your improvement plans and determine whether they increase the home's value appropriately.
Closing and escrow. At closing, funds for energy-efficient improvements are placed in an escrow account. These funds release to contractors as improvements are completed and inspected.
Combining VA EEMs with Other VA Benefits
Purchase loans. Use a VA EEM when purchasing a home to finance immediate energy-efficient improvements. This allows you to move into an already-upgraded home without depleting savings.
Refinancing. Include energy-efficient improvements when refinancing through a VA cash-out refinance or Interest Rate Reduction Refinance Loan (IRRRL) if adding improvements.
Renovation loans. For homes needing both repairs and energy-efficient improvements, consider whether a VA renovation loan or VA EEM better serves your needs.
Comparing VA EEMs to Other Options
Home equity loans or HELOCs. These provide funds for improvements but require sufficient equity and create additional monthly payments separate from your mortgage. VA EEMs integrate improvement costs into your mortgage, simplifying payments.
Personal loans. These offer quick funding but typically carry higher interest rates than mortgage financing. The interest also isn't tax-deductible like mortgage interest potentially is.
Cash payment. Using savings for energy improvements preserves your loan amount but depletes cash reserves. VA EEMs allow you to preserve savings for other needs.
FHA Energy Efficient Mortgages. FHA offers similar programs but requires down payments and mortgage insurance. VA EEMs typically offer better terms for eligible veterans.
Maximizing Your VA EEM Benefits
Prioritize high-impact improvements. Focus on upgrades providing the greatest energy savings relative to cost. Insulation, HVAC systems, and sealing air leaks typically offer excellent returns.
Consider long-term ownership. Energy-efficient improvements provide the greatest benefit if you own the home long enough to realize utility savings. Calculate your break-even point.
Research available incentives. Federal, state, and local governments often offer tax credits, rebates, or incentives for energy-efficient improvements. These incentives effectively reduce your total cost.
Plan comprehensively. Rather than making improvements piecemeal, develop a comprehensive energy efficiency plan that addresses multiple areas simultaneously for maximum impact.
Choose quality materials and installation. Proper installation is as important as product quality. Poorly installed energy-efficient products won't deliver expected savings.
Common Questions About VA EEMs
Can I use a VA EEM on a newly constructed home? Yes, though new homes typically include modern energy-efficient features. The program works best for existing homes needing upgrades.
What if improvements cost more than estimated? If costs exceed estimates, you may need to cover the difference out-of-pocket or reduce the scope of improvements. Get accurate estimates initially.
Can I do the work myself? Generally, no. Most improvements must be completed by licensed contractors. DIY work typically doesn't qualify for financing through a VA EEM.
How long do I have to complete improvements? Improvements should be completed within a reasonable timeframe after closing, typically 90 to 120 days. Your lender will specify exact timelines.
Do energy-efficient improvements affect my loan term? No. The loan term remains the same whether you include energy-efficient improvements or not.
Taking the Next Step
VA Energy Efficient Mortgages offer veterans a unique opportunity to finance home improvements that reduce utility costs, increase home value, and improve comfort. If you're purchasing a home or considering refinancing, evaluating whether energy-efficient improvements make sense for your situation can provide long-term benefits.
Explore VA Energy Efficient Mortgage Options
Understanding how to maximize VA loan benefits, including energy-efficient mortgage options, requires expertise in VA lending. Our team specializes in VA loans and can help you determine whether including energy-efficient improvements in your loan makes sense for your situation. We'll explain the process, help you understand costs and benefits, and guide you through the application process.
Contact us today to discuss your VA loan options and learn how energy-efficient improvements can enhance your homeownership experience.