VA Energy Efficient Mortgage | What is it and how does it work

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What is a VA Energy Efficient Mortgage (EEM)?

Suppose you want a solar water heater, thermal windows and doors, or some other energy efficient upgrade for your home.

The VA Energy Efficient Mortgage (EEM) is a special loan program that helps homeowners finance the cost of these energy improvements.

The program is offered through the Department of Veterans Affairs as part of its VA loan program.

Eligible military borrowers can use the EEM loan for projects of any size, and the mortgage rates available are the same low rates available with all VA mortgages.

Plus, like other VA loans, the EEM mortgage does not have a specific VA loan limit. You can borrow as much as your lender approves.

Check your VA loan eligibility (September 16, 2021)


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What improvements can you make with a VA EEM loan?

The VA Energy Efficient Mortgage can be used to finance a wide range of energy efficiency improvements to your home, provided the renovations reduce your home’s monthly utility costs.

Improvement fees are added to your loan balance and are paid back as part of your monthly mortgage payments.

According to official VA EEM mortgage guidelines, permitted energy efficiency improvements include, but are not limited to:

  • Install a solar water heater
  • Installation of a solar heating and / or cooling (HVAC) system
  • Realization of caulking and weatherstripping of a house
  • Make furnace efficiency changes to an HVAC unit
  • Add clock thermostats to a home
  • Adding new ceiling, attic, wall and floor insulation to a house
  • Insulating a water heater in a house
  • Install storm windows or doors, including thermal windows or doors
  • Add heat pumps to a house
  • Install vapor barriers in a house

The program can be used in conjunction with a home purchase loan or with a refinance loan.

This means that a VA EEM mortgage loan is available to eligible home buyers and existing homeowners.

Check your VA loan eligibility (September 16, 2021)

Benefits of a VA Energy Efficient Home Loan

An energy efficient home can do a lot more than save you money on utility bills. Homebuyers may be specifically considering this option to reduce energy costs, but a VA EEM offers homebuyers much more.

Here are some advantages of an energy efficient home:

  • Increased comfort throughout the year
  • Reduced damage to carpets and furniture
  • Reduction of air and noise pollution
  • Improved indoor air quality
  • Improved health

By paying for these upgrades using a VA EEM loan, you gain access to low mortgage rates and extended repayment periods.

This can be a much more cost effective way to pay for energy efficient upgrades than using, say, personal loans or credit cards.

Also, if you are buying a home, remember that the VA home loan does not allow any down payment. So you could potentially fund energy-efficient upgrades and buying the house with nothing.

If you are refinancing, you may have the option of lowering your interest rate at the same time as you finance your home renovations.

How to get a VA EEM home loan

Applying for a VA energy efficient mortgage is not much different from applying for another VA mortgage.

Your mortgage lender will want to verify your income using W-2 statements and pay stubs; your credit score and credit history will be reviewed; and, your employment history will be checked for two years.

However, with a VA EEM, you will also be required to provide an energy audit of the property. This is also known as the Home Energy Rating System (HERS) report.

Many utility companies perform this service for customers with a simple phone call, or you can hire a private third party to complete the report.

The objective of the energy audit of a house is twofold:

  1. Show what can be done to reduce a home’s energy consumption
  2. Set expectations on the amount of money that could be saved each month with improvements

It is then your responsibility, as the borrower, to document the expenses related to the improvements you plan to make.

Lenders will accept formal offers from contractors for this step. They will also accept a personal worksheet listing the improvements to be made and their costs.

How your mortgage approval goes will depend on the total cost of your project (s).

Check your VA loan eligibility (September 16, 2021)

When your VA EEM costs are less than $ 3,000

When your VA EEM costs are less than $ 3,000, mortgage lenders will usually “approve” the improvements, but not always.

You may be asked to verify your expected monthly savings, so the lender can ensure that the increase in your mortgage payment does not outweigh the benefits of the project.

When your VA EEM costs are between $ 3,000 and $ 6,000

When the cost of your VA EEM projects is more than $ 3,000 but less than $ 6,000, mortgage lenders will analyze your energy efficiency improvements to determine if the increase in your mortgage payment exceeds the benefits of your project. .

For example, if your project (s) are expected to reduce your energy bills by $ 100 per month and the costs of those projects increase your monthly mortgage payment by less than that amount, your loan will meet VA EEM product guidelines.

VA EEM loans made as part of a VA Streamline refinance (or “IRRRL”) are limited to $ 6,000.

When your VA EEM costs exceed $ 6,000

When the cost of your VA EEM projects exceeds $ 6,000, mortgage lenders will perform a more sophisticated analysis of your projects and the savings offered.

First, your lender will determine if the increase in your monthly mortgage payment is offset by the monthly reduction in energy costs.

Then it will check that you can afford the new higher payment.

Finally, the lender will verify that the proposed energy improvements increase the value of the property by an amount at least equal to the value requested through the VA EEM.

For example, if your house is worth $ 300,000 and you use the VA EEM home loan to add $ 15,000 in solar panels to your roof, your lender will need to verify that the house will be worth $ 315,000 after the improvements are complete.

Check your VA loan eligibility (September 16, 2021)

Timetable for using your VA EEM funds

You can start your energy efficiency upgrades as soon as possible, which is a unique aspect of the VA EEM home loan. This means that there is no waiting for the closing.

But how does this affect you and your VA EEM funds?

If you complete your home improvements before a home purchase or refinance closes, you only need to show that the work was completed within the last 90 days, and receipts for the work.

For projects starting after closing, or not yet completed at closing, a reimbursement process is followed.

At the time of closing, your mortgage lender will keep the cash necessary for the costs of your project in an escrow account. The money will be released with proof of completion within six months.

If for some reason you are unable to complete the energy efficiency work within six months, your lender will take the unused VA EEM funds and apply them to your mortgage amount.

VA Energy Efficient Mortgage Alternatives

With the strict eligibility requirements for a VA loan, many home buyers will not qualify for this type of mortgage because they are not veterans, military or military.

Fortunately, a VA EEM is not the only mortgage program for homebuyers interested in energy efficiency upgrades.

In addition to a VA EEM, buyers can choose between an FHA or a conventional EEM.

FHA Energy Efficient Mortgage

With an FHA EEM, you can get a mortgage that will cover the cost of energy efficiency upgrades, including inspection, materials, and labor.

The mortgage will also cover the cost of the home’s energy assessment, which is necessary to determine the total cost of the energy efficiency improvements.

Unlike the VA EEM, the Federal Housing Administration limits the cost of energy efficiency upgrades that can be made to a home.

The maximum amount that can be added to an FHA loan is the lesser of the following amounts:

  • The costs determined by the energy balance of the house;
  • Or the lesser of 5% of:
    • The adjusted value of the house,
    • 115% of the median price of single-family homes in the region
    • Or 150% of the national compliant limit

These restrictions could make it difficult for homeowners to obtain the necessary financing for the improvements to be fully covered.

However, the FHA does not have special eligibility requirements like VA> and borrowers with credit scores as low as 580 might be eligible. So, qualifying for an EEM FHA can be a bit easier.

Energy efficient conventional mortgage

A conventional mortgage can also offer home buyers and homeowners the opportunity to make energy efficient improvements to their homes.

When taking this route, borrowers apply for either the Fannie Mae Homestyle Energy Mortgage or the Freddie Mac GreenCHOICE Mortgage. Both are available from lenders across the country.

Like other conventional loans, these programs offer a down payment of just 3% and cancellable private mortgage insurance (PMI).

And, the better your credit rating, the lower your mortgage rate will be.

Fannie and Freddie’s EEM programs allow you to spend up to 15% of the home’s “completed value” on energy efficiency upgrades.

“For example,” says Fannie Mae, “an eligible buyer with a home worth $ 100,000 after renovations can receive up to $ 15,000 (15%) from the mortgage transaction.

What are the VA mortgage rates today?

Another way the Department of Veterans Affairs helps military borrowers access affordable homeownership is the VA EEM Home Loan.

If you are buying a home in need of energy efficiency upgrades or if you own a home that could benefit from green upgrades, the VA EEM could be a great option.

Check your eligibility for this VA program and see if you qualify for today’s low mortgage rates.

Check your new rate (Sep 16, 2021)

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