VA Energy Efficient Mortgages (EEMs)

The VA Energy Efficient Mortgage program enables borrowers to make energy-efficient home improvements and save money on utility costs and take advantage of a lower VA loan rate. Energy Efficient home improvements such as solar panels and storm or thermal windows can require a lot of money upfront but with an EEM you can finance your costs upfront with add-ons to your VA loan.

What is an Energy Efficient Mortgage?

EEM loans are made in conjunction with a VA purchase loan for an existing dwelling, or a refinance loan secured by that dwelling to add energy efficiency improvements.

EEM Loan Types:

• A VA loan for the purchase of an existing dwelling, or
• A VA refinancing loan secured by the dwelling

Acceptable energy efficiency improvements include, but are not limited to:

• Solar heating systems, including solar systems for heating water for
  domestic use
• Solar cooling systems
• Caulking and weather-stripping
• Energy efficient furnace or efficiency modifications limited to replacement burners, boilers,
  or furnaces designed to reduce the firing rate or to achieve a reduction in
  the amount of fuel consumed as a result of increased combustion
  efficiency, devices for modifying flue openings which will increase the
  efficiency of the heating system, and electrical or mechanical furnace
  ignition systems which replace standing gas pilot lights
• Clock thermostats
• New or additional ceiling, attic, wall and floor insulation
• Water heater insulation
• Storm windows and/or doors, including thermal windows and/or doors
• Heat pumps
• Vapor barriers

* This list is not all inclusive.  If you are unsure whether or not an improvement is considered energy efficient for VA purposes, contact your nearest VA Regional Loan Center.

Generally, improvements such as appliances, new roofing and vinyl siding will not qualify for an EEM loan.

VA Energy Efficient Loan Pros and Cons

EEM Pros

• Improve your house’s energy performance
• Reduce monthly utility bills
• Increase property value
• Finance a home purchase or refinance plus energy efficiency improvements with one loan
• Borrower does not need to re-apply to add improvements to mortgage amount
• Low VA mortgage rate versus a higher-interest rate financing such as a second mortgage, home equity loan or credit card
• No down payment required
• Higher mortgage interest tax deduction benefit
• Some EEM improvements provide for additional federal, state and local tax incentives and rebates

EEM Cons

• Limit on amount of energy efficiency improvements
• Additional closing costs and longer mortgage closing process
• Not offered by all lenders

How To Get A VA EEM Home Loan

Applying for a VA Energy-Efficiency Mortgage is almost the same process as applying for a traditional mortgage except for these additional steps below.

Steps to get an Energy-Efficient Loan

• Select a VA Energy Efficient Mortgage lender.
• Order an energy audit/analysis that shows what can be saved with EEM improvements.
• Document the expense of EEM improvements.
• Complete the Energy Efficient improvements.
• Provide written notification to the VA when improvements are completed to receive the funds held in escrow until the work is completed.

VA EEM Underwriting and Documentation Requirements

VA Energy Efficient Mortgage requirements vary based on the total cost of the improvements. Lenders must evaluate both the financial impact of the upgrades and collect specific documentation before closing.

Improvements Up to $3,000

For projects totaling $3,000 or less:

• Borrowers must provide documentation of the cost, such as a contractor bid or itemized contract.
• The lender generally assumes that the increase in the monthly mortgage payment will be offset by the reduction in utility costs.
• No additional appraisal is typically required solely due to the EEM amount.

This is the simplest approval tier.

Improvements Over $3,000 and Up to $6,000

For projects between $3,001 and $6,000:

• Borrowers must provide documented cost estimates.
• The lender must certify that the increase in the monthly mortgage payment does not exceed the projected monthly utility savings.
• This determination should rely on credible local data (utility providers, municipalities, or state agencies).

The goal at this level is to ensure the improvements are financially neutral or beneficial for the borrower.

Improvements Over $6,000

For projects exceeding $6,000:

• The added loan amount must be supported by the property’s appraised value.
• The appraisal is completed “as repaired,” reflecting the home’s projected value after improvements.
• The increase must be supported by the Notice of Value (NOV).
• Lenders must also evaluate whether the borrower’s income can support the higher payment if utility savings do not fully offset the increase.

If a VA Certificate of Commitment was issued before the larger improvement amount was added, it may need to be returned to the VA for re-evaluation.

Special Rule for IRRRLs

If using an Interest Rate Reduction Refinance Loan (IRRRL) and the new monthly payment (including principal, interest, taxes, and insurance) increases by 20% or more, the lender must obtain underwriter certification confirming the borrower qualifies for the higher payment.

Things to Know About Getting an EEM

You do not need additional VA eligibility to combine an Energy Efficient Mortgage (EEM) with other VA loan programs.

With a contractor’s bid or energy analysis, borrowers may add up to $6,000 in energy-efficient improvements to their VA loan. If the improvements increase the home’s value on a dollar-for-dollar basis, amounts above $6,000 may also be financed, subject to appraisal approval.

Improvement costs are rolled into your loan balance and repaid through your monthly mortgage payment. Funds are held in escrow until the work is completed, which typically must occur within six months of closing. If the improvements are not finished within that timeframe, any unused funds may be applied to the loan’s principal balance.

Find the VA Energy Efficient Mortgage (EEM) Program Guidelines for more information.