An energy efficient mortgage allows a borrower to include the cost of approved energy improvements in the loan amount, even if those costs push the loan above the standard LTV limit. The premise is that energy savings reduce the monthly cost of homeownership, offsetting the higher loan amount.
FHA EEM Program
FHA allows borrowers to add the lesser of 5% of the property value (not to exceed $8,000) or $4,000 to the loan amount for energy improvements. A home energy assessment by a qualified energy rater is required. The assessor must document the projected energy cost savings. Improvements must exceed the cost of the assessment by a minimum ratio.
- ✦Maximum FHA EEM add-on: the lesser of $8,000 or 5% of appraised value
- ✦Energy audit required from a HUD-approved energy consultant
- ✦Cost-effectiveness test: savings must exceed cost of improvements
- ✦Funds held in escrow and disbursed after improvements are verified complete
- ✦No new appraisal required solely for EEM purposes if improvements are minor
VA EEM Program
VA allows up to $6,000 in energy improvements on a VA purchase or refinance. Improvements must be completed within 6 months of closing. Eligible improvements include solar heating, storm windows, additional insulation, vapor barriers, and new HVAC systems. Unlike FHA, VA does not always require a formal energy audit for smaller improvement amounts under $3,000.
Practical Use Cases
EEMs are underutilized in markets with aging housing stock. A buyer purchasing a 1970s home with a failing HVAC system or poor insulation can wrap the energy upgrade cost into the loan rather than paying out of pocket after closing. The energy savings over time often justify the incremental debt service.
Aria can walk through FHA and VA EEM program caps, eligible improvements, and energy audit requirements for any purchase or refinance scenario. Ask at vicariointel.com.
7-day free trial. No credit card required.
Ask Aria About Energy Efficient Mortgage Programs →