An Energy Efficient Mortgage (EEM) can be used by borrowers to purchase or refinance a home that is already energy efficient, such as an ENERGY STAR certified home, or to finance energy efficient improvements to an existing home. An EEM takes into account the cost savings that accrue to the homeowner as a result of lower utility bills. The value of utility savings is used by the lender to provide more favorable financing terms to the borrower, such as a better debt-to-income qualifying ratio that enables the borrower to qualify for a larger loan amount and a better, more energy-efficient home.
To obtain an EEM a borrower typically must have a home energy rater or other trained professional conduct a home energy assessment or rating before financing is approved. This assessment verifies for the lender that the home is energy-efficient or will be energy efficient after energy efficient improvements are completed, and provides the lender with the estimated monthly energy savings and the value of the energy efficiency measures — known as the Energy Savings Value. EEMs 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 Mortgage
Conventional EEMs may increase a borrower’s purchasing power when making energy efficient upgrades to their home at the time of purchase or refinance.
With Fannie Mae’s HomeStyle® Energy mortgage borrowers can make upgrades to reduce utility costs and improve the comfort and safety of their homes by financing energy improvements directly in a purchase or refinance mortgage. Upgrades may also include solar, geothermal, or wind power. In addition, borrowers may use HomeStyle Energy to pay off existing energy debt, including but not limited to PACE loans. Learn more about the benefits of an energy-efficient home here.
Freddie Mac's GreenCHOICE Mortgage® allows borrowers to finance energy efficient improvements with any mortgage product, property type and financing terms up to 30 years to provide affordable financing opportunities and greater purchasing power despite higher debt-to-income and housing expense-to-income ratios for manually underwritten loans.
Federal Housing Administration (FHA) Energy Efficient Mortgage Program
FHA’s Energy Efficient Mortgage program (EEM) allows homeowners to save money on utility bills by enabling them to finance energy efficient improvements with their FHA-insured mortgage. Under its EEM program, FHA insures a borrower’s mortgage used to purchase or refinance a principal residence, and the cost of energy efficient improvements to be made on the home. The borrower only needs to qualify for the loan amount used to purchase or refinance a home and does not need to qualify for the portion of the loan to be used to finance the energy efficient improvements. The energy efficient improvements that are financed must be cost-effective and can include the cost of materials, labor, inspections, and the cost of a home energy assessment by a qualified energy assessor. The maximum amount of the energy efficient improvements that can be added to the borrower’s regular FHA loan amount is the lesser of:
- The cost of the energy efficient improvements to be made based on a home energy assessment; or
- the lesser of 5 percent of:
- The Adjusted Value;
- 115 percent of the median area price of a Single Family dwelling; or
- 150 percent of the national conforming mortgage limit.
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 . Additional information about the FHA EEM can be found on FHA's web site .
FHA’s EEM program is available for site-built as well as manufactured homes. The Systems Building Research Alliance has information about FHA EEMs for ENERGY STAR certified manufactured homes.
USDA Single Family Housing Guaranteed Loan Program
The U.S. Department of Agriculture's (USDA) Single Family Housing Guaranteed Loan Program assists approved lenders in providing low- and moderate-income households the opportunity of homeownership in eligible rural areas. Eligible applicants may purchase, build, rehabilitate, improve or relocate a dwelling in an eligible rural area with 100% financing.
Veterans Affairs Energy Efficient Mortgage
The U.S. Department of Veterans Affairs (VA) EEM is available to qualified military personnel, reservists and veterans for energy improvements when purchasing an existing home. Chapter 7 of VA Pamphlet 26-7 (Revised) (PDF, 1.4 MB) contains lender guidance on the VA EEM. For more information about VA loans please visit the VA’s web site .