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What is an energy-efficient mortgage?

An EEM can help pay for energy-efficient homes and improvements

man screwing solar panels on roof

An energy-efficient mortgage is a home loan you can put towards either buying a home that’s already efficient or remodeling a home to make it greener.

So, whether you’re a buyer or an existing homeowner, an energy-efficient mortgage may be right for you. Read on to see how an energy-efficient mortgage (EEM) works and where to get one.

How energy-efficient mortgages work

You can use an energy-efficient mortgage to buy a new home or refinance your current home. You just have to use the money for a home that’s already energy efficient or for efficiency upgrades. Eligible upgrades can include:

  • Installing solar panels
  • Installing a wind power system
  • Replacing a furnace or cooling system
  • Insulating your attic, crawl space, pipes or air ducts
  • Replacing doors or windows

Energy-efficient mortgages often add the cost of these upgrades (including materials, labor and inspections) to your loan limit. This means you can potentially borrow more than you would otherwise be qualified for.

The exact process for getting an energy-efficient mortgage may differ, depending on the type of EEM you choose and what you’re doing with it. Many energy-efficient mortgages are insured by the federal government, which means they come with specific requirements no matter where you get one. Conventional EEMs can have similar stipulations, but these vary by lender.

  • If you’re upgrading a home, your first step is usually getting a home energy assessment to identify which upgrades you need and whether they’ll be effective in terms of cost over the long term.
  • If you’re buying a green home, you need to make sure it meets official efficiency standards, such as being Energy Star-certified.

From there, you can begin applying for an energy-efficient mortgage through your lender of choice.

Energy-efficient mortgage programs

Lenders offer various types of energy-efficient mortgages. Consider the options below to find which one is better for you.

Conventional energy-efficient mortgages

Like other conventional mortgages, conventional EEMs are offered by private lenders and not insured by the government. There are multiple options available for conventional EEMs.

For instance, Fannie Mae offers its HomeStyle Energy mortgage that you can use to buy a home and make green upgrades, including improvements to the home’s:

  • Energy efficiency
  • Water efficiency
  • Renewable energy
  • Natural disaster readiness

With this loan, you could have a down payment as low as 3%, and you can potentially bundle your debt from other green upgrades into your mortgage. If you’re a buyer, you can use up to 15% of the eventual value of your home (once the upgrades are complete) for your improvements. If you’re refinancing, you can use up to 15% of your home’s current value.

FHA energy-efficient mortgages

The Federal Housing Administration (FHA) insures energy-efficient mortgages available from private lenders. These loans can be used for purchasing and refinancing, and you can even use the agency’s Energy Efficient Homes (EEH) program to get more money for a house that’s already environmentally friendly.

EEM terms usually range from 15 to 30 years.

The limit for how much extra you can borrow versus a typical FHA loan is the lesser of either:

  • The efficiency improvements you’re making
  • 5% of your home’s adjusted value
  • 5% of 115% of the median area price of a single-family dwelling
  • 5% of 150% of the national conforming mortgage limit

You can apply for an FHA energy-efficient mortgage at your local HUD office via an FHA-approved lender. Read about FHA loan requirements for more information.

VA energy-efficient mortgages

Eligible military personnel, veterans and reservists can use loans from the U.S Department of Veterans Affairs to purchase an energy-efficient home or upgrade a home to make it energy efficient. However, these loans may not offer specific benefits for energy efficiency.

For more, read about the eligibility requirements for a VA loan or compare top VA loan lenders.

Benefits of an energy-efficient mortgage

Several possible advantages come with energy-efficient mortgages, including:

  • Higher loan limits
  • Increased home comfort
  • Lower energy bills

If you’re buying a home that’s already efficient, an EEM should give you a higher loan limit. This is because lenders factor in the potential savings for your budget. An EEM can also make buying a less efficient home more viable if you’re willing to upgrade it.

For existing homeowners, refinancing with an EEM is a good way to get cash for efficiency improvements without tapping into your home’s equity or your savings.

Factors to consider

Here are some factors worth considering before applying for an energy-efficient mortgage:

  • Your eligibility: Most people have to either get a home energy assessment or proof of their home’s efficiency before applying for an EEM. If you’re looking to upgrade, your home may not qualify for enough work to make an EEM a good choice. Likewise, proving that your home is already efficient enough could be hard if the documentation isn’t readily available.
  • Your choice of EEM: Different energy-efficient mortgage products have different rules and requirements. Make sure you choose the one that fits your needs and preferences.
  • Your monthly payment: One of an EEM’s main advantages is that it lets you borrow more than you could otherwise, but having a larger mortgage isn’t always a good idea. While energy-efficient upgrades should pay for themselves in the long run, it’s up to you to make sure you can handle a larger mortgage payment each month.

As with any home loan, you also want to consider your interest rate, loan term and fees.

Where to find energy-efficient mortgage lenders

Energy-efficient home loans are offered by a wide range of lenders:

Bottom line

Whether your house is already efficient or you’re trying to improve it, an energy-efficient home loan may be a good option. Energy efficiency can save you money over the long term, and it’s good for the environment too.

If you don’t need a mortgage but you still want to be green, check out our articles on financing home renovations, solar energy companies and solar financing companies.

ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page.
  1. U.S. Department of Housing and Urban Development (HUD), “ENERGY EFFICIENT MORTGAGE PROGRAM.” Accessed on July 24, 2021.
  2. Office of Energy Efficiency & Renewable Energy, “Financing Energy-Efficient Homes.” Accessed on July 24, 2021.
  3. Fannie Mae, “HomeStyle Energy Mortgage.” Accessed on July 24, 2021.
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The ConsumerAffairs Research Team believes everyone deserves to make smart decisions. We aim to provide readers with the most up-to-date information available about today's consumer products and services.