An Energy Efficient Mortgage (EEM) is a mortgage that credits a home's energy efficiency in the mortgage itself. EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.
To get an EEM a borrower typically has to have a home energy rater conduct a home energy rating before financing is approved. This rating verifies for the lender that the home is energy-efficient.
EEMs are typically used to purchase a new home that is already energy efficient such as an ENERGY STAR certified home. The term EEM is commonly used to refer to all types of energy mortgages including Energy Improvement Mortgages (EIMs), which are used to purchase existing homes that will have energy efficiency improvements made to them. EIMs allow borrowers to include the cost of energy-efficiency improvements to an existing home in the mortgage without increasing the down payment. EIMs allow the borrower to use the money saved in utility bills to finance energy improvements.
Both EEMs and EIMs typically require a home energy rating to provide the lender with the estimated monthly energy savings and the value of the energy efficiency measures — known as the Energy Savings Value. EEMs (and EIMs) are sponsored by federally insured mortgage programs (FHA and VA) and the conventional secondary mortgage market. Lenders can offer conventional EEMs, FHA EEMs, or VA EEMs.
Conventional Energy Efficient Mortgages
Conventional EEMs increase the purchasing power of buying an energy efficient home by allowing the lender to increase the borrower's income by a dollar amount equal to the estimated energy savings. While Freddie Mac does not offer EEMS, they do allow underwriting flexibilities for energy efficient improvements with all of their offerings. Discuss this directly with your lender to find out more. To find a lender in your area, please visit the ENERGY STAR Partner Locator.
FHA Energy Efficient Mortgages
The mortgage loan amount for an FHA EEM can be increased by the cost of effective energy improvements. The maximum amount of the portion of the EEM for energy efficient improvements is the lesser of 5% of:
- the value of the property, or
- 115% of the median area price of a single family dwelling, or
- 150% of the conforming Freddie Mac limit.
No additional down payment is required, and the FHA loan limits won't interfere with the process of obtaining the EEM. FHA EEMs are available for site-built as well as for manufactured homes. Applications for an FHA EEM may be submitted to the local HUD Field Office through an FHA-approved lending institution. HUD has a searchable list of approved lenders. Information about the FHA EEM can be found on FHA's web site. Additional information is available from HUD's Office of Single Family Housing by calling (800) 569-4287. There is also a fact sheet about FHA's EEM (PDF, 70KB). The Systems Building Research Alliance has information about FHA EEMs for ENERGY STAR certified manufactured homes.
VA Energy Efficient Mortgages
The Veteran's Administration (VA) EEM is available to qualified military personnel, reservists and veterans for energy improvements when purchasing an existing home. The VA EEM caps energy improvements at $3,000–$6,000. Borrowers should ask their lender about a VA EEM at the beginning of the lending process. More information about VA EEMs can be obtained from the website for the U.S. Department of Veteran's Affairs or by calling (800) 827-1000. Chapter 7 of VA Pamphlet 26-7 (Revised) (PDF, 1.5MB) contains lender guidance on the VA EEM.