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How to Get a VA Energy Efficient Mortgage (EEM)

Energy Efficient Mortgages are an excellent option for those looking to invest in upgrades that can save you money in the long run. EEM homes can provide increased protection against heat, cold, pollution, and moisture, and are also great at reducing your carbon footprint.

Longtime homeowners know that old windows, inefficient heating systems, poor insulation, and other energy drains can take a significant and expensive toll on your annual utility costs.

Investing in upgrades and technologies that boost energy efficiency can save homeowners a healthy chunk of change in the long run. As with other lending options, VA borrowers can look to obtain an Energy Efficient Mortgage (EEM), which allows qualified buyers to add to their purchase or VA Streamline (IRRL) refinance loan the cost of acceptable energy improvements.

VA Energy Efficient Mortgages can be a solid investment for veterans and their families, especially those planning to stay in the home for a while. Spending money at the outset on energy improvements can ultimately lower heating, cooling, and other related energy costs for years to come.

That monthly savings can be funneled into additional payments to the mortgage principal or dozens of other household necessities.

3 Cost Tiers for EEMs

There are three cost tiers of VA Energy Efficient mortgages:

1. Improvements totaling $0 – $3,000: This is the easiest tier to get approved. You will generally need to provide a copy of a contractor bid or quote itemizing the costs, and you will need to provide manufacturer information for each product.

2. Improvements totaling $3,001 – $6,000: In addition to the information required in the first tier, you'll also have to obtain an energy audit showing a year's worth of utility cost averages for the home. These documents will then be reviewed to determine if the proposed EEM improvements will significantly impact the utilities to be cost-effective.

3. Improvements of $6,001 and up: It's challenging to obtain an EEM greater than $6,000. Requests for this tier have to be approved by the lender and the VA. In addition, it's important to understand that financing the cost of acceptable energy efficiency improvements cannot count toward meeting the minimum loan amount necessary for VA loans utilizing second-tier entitlement.

The veteran typically has six months after closing to complete the VA energy efficiency improvements completed. Small fixes can be taken care of before closing. Otherwise, the lender may decide to open an escrow account for the improvement funding.

Energy Audits

There's standard language on a VA appraisal that explains veterans' ability to secure an energy-efficient mortgage. That same section also notes that the buyer may want to consider paying for a home energy audit, a key step that kick-starts the process.

HERS Index

If you plan to pursue an EEM between $3,000 and $6,000, you'll need to provide a Home Energy Rating System (HERS) report or an energy audit from the local utility company. The HERS report will document how efficiently a home is operating and potential improvements. The HERS Index score ranges from 0-150. The lower the number, the more efficient a home is functioning. The standard for new homes is a 100 HERS score.

A HERS report's fee is typically around $300-800, but the seller or buyer can cover this cost. Veterans can check with their local utility companies to see if there are free or reduced-cost energy audits available. Private firms may also offer discounts for military members, veterans, and their families. As with any in-home service like this, make sure you hire a legitimate company with a proven track record.

Acceptable Improvements

An EEM can be used towards various home improvements, but there are some guidelines to follow. It's important to understand the limitations involved when it comes to acceptable energy efficiency improvements.

For example, veterans can't use an EEM to install an energy-efficient swimming pool, appliances, or cosmetic upgrades to the property.

Some acceptable EEM improvements include:

  • Thermal windows and doors
  • Insulation for walls, ceilings, attics, floors, and water heaters
  • Clock thermostats
  • Solar heating and cooling systems
  • Furnace modifications
  • Heat pumps
  • Vapor barriers, storm windows/doors
  • Caulking and weather-stripping

Some items will not be considered under an EEM:

  • Energy Star rated appliances
  • A/C units
  • Vinyl siding
  • New roof or shingles

VA EEM Improvements typically need to be considered permanent to the property. Window air conditioning units wouldn't be considered permanent, and adding central air conditioning to a home wouldn't likely increase a home's energy efficiency.

3 Ways of Using an EEM

Energy Efficient Mortgages credit a home's energy efficiency in the home loan. The credit from an EEM can be used in 3 ways:

  1. You can use an EEM on an already energy-efficient home. The VA home loan allows up to $6000 more on a loan if the home meets the HERS' energy-efficient standards. This can be the extra boost your mortgage needs.
  2. You can use an EEM to buy an older home that needs energy improvements. Improvements like thermal windows and insulation can be applied, so the home meets HERS standards.
  3. You can refinance into an EEM if your current home needs energy improvement. If you have an outdated house that needs energy improvement, consider the benefits of refinancing under an EEM.

EEM homes will have increased comfort and protection against heat, cold, moisture, and pollution. In the long run, an EEM can pay terrific dividends and reduce your carbon footprint. But every buyer's situation is different.

Depending on the property and your particular interest, talk with a Veterans United loan specialist about your energy efficiency options.