What is an energy-efficient mortgage?
An energy-efficient mortgage, or EEM, is a home loan that’s specifically geared toward homeowners interested in energy efficiency. These loans can be used to buy or refinance a home that already meets energy-efficiency standards or that will meet them after improvements are made.
Generally speaking, green home loans allow homeowners or homebuyers to finance more than the purchase price of a home and use the excess funds to pay for energy-efficient upgrades. EEMs may have high monthly payments and total loan costs, but homeowners can recoup these expenses (and potentially more) by incurring lower energy costs during the years they own the home.
Each type of green mortgage has its own rules and borrowing limits, so you’ll want to speak with a mortgage lender to find out which requirements apply to the mortgage you’re interested in.
EEMs can be conventional mortgages or mortgages guaranteed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA).
Eligible green upgrades
The improvements that qualify for financing through an EEM can vary based on the home itself, the area in which the home is located and other factors.
Dennis Shirshikov, the head of growth for real estate investing platform Awning, says you’ll typically see things like energy-efficient windows, insulation, and heating, ventilation and air conditioning systems count toward green mortgage eligibility. But he also noted that anything that can directly contribute to reducing energy consumption “could be a go.”
However, something like a luxury swimming pool heater typically won’t make the cut, he says.
Eligible green upgrades may include:
- Heating and cooling systems: High-efficiency furnaces, heat pumps, central air conditioning units and smart thermostats that reduce energy consumption
- Insulation: Adding or upgrading insulation in attics, walls, crawl spaces and basements to reduce heating and cooling costs
- Windows and doors: Energy-efficient replacement windows and doors that meet ENERGY STAR standards and reduce heat transfer
- Solar energy systems: Solar panels, solar water heaters and battery storage systems that generate renewable energy
- Water heating: Tankless water heaters, heat pump water heaters and solar water heating systems
- Roofing: Cool roofs or reflective roofing materials that reduce cooling costs in warm climates
- Weatherization: Caulking, weather stripping and air sealing to prevent drafts and energy loss
- Alternative energy: Wind turbines, geothermal systems and other renewable energy installations
- Lighting: LED lighting systems and motion-sensor lighting that reduce electricity consumption
- Appliances: ENERGY STAR-rated appliances like refrigerators, dishwashers and washing machines (if included in the home purchase)
Ultimately, you’ll find out which energy-efficient upgrades qualify for an EEM when an energy rater assesses your home. These assessments verify for the lender that a home will become more energy efficient after renovations are complete.
They also provide the lender with the home’s projected Energy Savings Value, i.e., the estimated monthly energy savings the homebuyer can expect from their upgrades.
» MORE: Best mortgage lenders
Types of energy-efficient mortgages
Green mortgages can come in various forms, which is good news for borrowers who want to improve their energy efficiency without missing out on the home loan benefits they may be eligible for. Both conventional and guaranteed green mortgages are available from many different mortgage lenders, though options vary from lender to lender.
Shirshikov says that the internet is a treasure trove when it comes to finding lenders that will work with you on an EEM, as well as obtaining general information on the home upgrades you might want or need.
“There’s a plethora of information available, from government websites to forums and blogs dedicated to green housing initiatives,” he said.
Here’s a rundown of the types of EEMs you'll find today:
Conventional energy-efficient mortgages
Conventional mortgages can be EEMs, and there are a few types of home loans that fall into this category:
Fannie Mae’s HomeStyle Energy mortgage program
This program lets borrowers finance energy-efficient upgrades via either a purchase or refinance loan. Borrowers can also use these loans to pay off some types of energy-related debt they already have.
With a HomeStyle Energy mortgage, borrowers can finance up to 15% of a home’s projected value after upgrades are completed. However, improvements that cost more than $3,500 may require an assessment from the Home Energy Reporting System, the Department of Energy or a comparable entity.
Freddie Mac’s GreenCHOICE Mortgage program
This is another green mortgage option that lets buyers finance eligible green energy improvements with terms that last up to 30 years. Borrowers can finance up to 115% of a home's after-renovation value to pay for improvements. This type of loan works for homes with one to four units.
Common improvements that can qualify for financing through a GreenCHOICE mortgage include air sealing, caulking, solar water heaters, window and door replacements and more.
FHA energy-efficient mortgages
The Federal Housing Administration (FHA) insures EEMs that are offered through private lenders. These loans can be used for purchasing and refinancing, and you can even use the FHA’s EEM program to get more money for a house that’s already environmentally friendly.
The limit for the amount of extra funds you can borrow compared with a typical FHA loan is the lesser of:
- The cost of 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 conforming loan limit set by the Federal Housing Finance Agency
You can apply for an FHA EEM via an FHA-approved lender, provided you meet the FHA’s eligibility requirements. If you have a credit score of 580 or higher, you’ll need to make a down payment of at least 3.5% to qualify for an FHA loan. If your credit score is between 500 and 579, you'll need a down payment of at least 10%. FHA loans also feature maximum loan amounts that vary based on the county you live in.
To find an FHA EEM, you can check out the Lender List provided by the U.S. Department of Housing and Urban Development, or you can read our guide to FHA lenders.
VA energy-efficient mortgages
Eligible military veterans, active-duty personnel, reservists and surviving spouses can use loans from the U.S. Department of Veterans Affairs (VA) to make energy-efficient upgrades to their homes. Common improvements that can qualify for a VA EEM include solar panels, weatherproofing, new insulation, solar water heater installation and more.
Generally speaking, it’s easiest for eligible homeowners to get approved for a VA green mortgage with upgrades that cost $3,000 or less. A VA EEM for upgrade costs totaling $3,001 to $6,000 requires a home energy audit that shows energy usage and costs for at least one year.
According to Veterans United Home Loans, a popular lender for VA loans, it can be difficult to obtain approval for green mortgages with energy-efficient upgrades of $6,001 or more.
Our guide to VA lenders can help you find out which lenders offer VA loans for energy-efficient upgrades.
USDA energy-efficient mortgages
The Single Family Housing Guaranteed Loan Program offered by the U.S. Department of Agriculture (USDA) helps eligible applicants “purchase, build, rehabilitate, improve or relocate a dwelling in an eligible rural area with 100% financing.”
USDA mortgages don't require a down payment. But they can only be used in areas deemed “rural” by the USDA. Beyond that, buyers who apply cannot have an income that exceeds 115% of the median household income in their area.
How to get an energy-efficient mortgage
Dennis Shirshikov says lenders typically look at a borrower’s credit history, income stability and debt-to-income ratio when they apply for a green mortgage.
One unique aspect of an EEM is that the borrower’s home must be assessed by a third-party home energy rater to identify potential energy-saving improvements.
Step 1: Get a home energy assessment
A home energy rater conducts a Home Energy Rating System (HERS) assessment or energy audit to evaluate the home’s current energy performance. The rater identifies cost-effective improvements and estimates the energy savings each upgrade will provide. This assessment is required whether you’re buying a home that needs upgrades or purchasing a home that already demonstrates energy efficiency.
Step 2: Review recommended upgrades and estimated savings
The energy rater will provide a report detailing which improvements will provide the most energy savings and how much each upgrade will cost. Lenders considering a green mortgage application will also estimate the potential savings that green energy upgrades will yield for the homeowner over time.
Step 3: Determine your loan amount
Depending on the loan type, homeowners or homebuyers can typically borrow up to 15% of a home’s projected post-upgrade value to make energy-efficient improvements. Your lender will calculate how much you can finance based on the home’s appraised value after the planned improvements are completed.
Step 4: Get contractor bids and apply for your EEM
Obtain quotes from certified contractors for the energy-efficient upgrades recommended in your energy assessment. Submit these bids along with your mortgage application and energy rater's report to your lender.
Step 5: Complete the upgrades within the required timeframe
A homeowner typically has three to six months to complete the recommended upgrades for a green mortgage, depending on their lender and mortgage type.
Lenders may allow a homeowner to execute some of the financed energy upgrades independently, but the homeowner can’t pay themselves for the labor involved. Funds from an EEM can only be used to pay for materials and work done by certified contractors for energy-efficient upgrades.
Step 6: Schedule a final inspection
After the upgrades are completed, an inspection is required to receive a disbursement of the loan funds meant for reimbursement. The inspector verifies that all improvements were completed according to specifications and meet local building codes.
» MORE: How to get a mortgage
Tax credits and rebates for energy-efficient home improvements
Beyond financing through an energy-efficient mortgage, homeowners can take advantage of federal, state and local incentives that reduce the cost of green upgrades. These tax credits and rebates can be combined with EEMs to maximize your savings and make energy improvements more affordable.
Federal tax credits
The federal Energy Efficient Home Improvement Credit allows homeowners to claim up to 30% of the cost of qualifying energy-efficient improvements, with annual limits on specific categories. As of 2024, you can claim:
- Up to $1,200 per year for energy-efficient doors, windows, insulation, home energy audits and certain HVAC systems
- Up to $2,000 per year for heat pumps, heat pump water heaters and biomass stoves
- 30% of the cost with no annual limit for solar panels, solar water heaters, geothermal heat pumps, small wind turbines and battery storage systems (through 2032)
The Residential Clean Energy Credit covers renewable energy systems installed in your primary or secondary residence. This credit allows you to claim 30% of installation costs for solar, wind, geothermal and fuel cell technologies. Both credits are claimed on your federal tax return using IRS Form 5695.
State and local rebates
Many states and utility companies offer additional rebates and incentives for energy-efficient upgrades. These programs vary by location but commonly include:
- Cash rebates for upgrading to ENERGY STAR appliances, high-efficiency HVAC systems or smart thermostats
- Utility company rebates for home energy audits, insulation upgrades or weatherization improvements
- State tax credits for solar panel installation or renewable energy systems
- Property tax exemptions that prevent your home's assessed value from increasing after adding solar panels or other green improvements
According to the Database of State Incentives for Renewables & Efficiency (DSIRE), most states offer at least one rebate or incentive program for residential energy improvements. Check with your state energy office or local utility provider to find programs available in your area.
Combining incentives with EEMs
The good news is that tax credits and rebates can be stacked with energy-efficient mortgage financing to reduce your out-of-pocket costs even further.
For example, you could finance solar panel installation through an EEM, then claim the 30% federal tax credit on your tax return. Similarly, utility rebates for HVAC upgrades can offset the cost of improvements financed through your mortgage.
Visit DSIRE.org or ENERGY STAR’s rebate finder to search for federal, state and local programs by ZIP code. Your mortgage lender or energy consultant can also help you find the right incentives for your improvements.
When planning your energy improvements, factor in available incentives to maximize your savings. Work with your energy rater and contractor to identify which upgrades qualify for both EEM financing and tax credits or rebates.
Be sure to keep all receipts, manufacturer certifications and contractor documentation, as you’ll need these to claim tax credits and rebates.
Pros and cons of an energy-efficient mortgage
Getting a green mortgage requires a few more steps than getting a regular mortgage, especially when you consider that your home has to be assessed by a qualified energy rater. That said, there are notable benefits that can come with getting an EEM.
Consider these pros and cons before you decide if it’s worth it or not.
Pros
- An EEM allows you to borrow more than a home's current value and use the excess to make eligible home improvements.
- Green upgrades help you save on home energy bills.
- Green upgrades reduce your environmental impact.
Cons
- An EEM requires a home energy audit.
- Upgrades you want may not be deemed necessary by your energy rater.
- Borrowing more money upfront leads to higher loan costs in the long run.
FAQ
Will an energy-efficient mortgage save me money?
An energy-efficient mortgage itself usually costs more than a regular mortgage, since you're typically borrowing more than the current value of the home. However, over time, the energy savings from energy-efficient upgrades can more than offset the added costs of the larger mortgage.
Do green mortgages have lower interest rates?
Green mortgages typically have the same interest rates as standard mortgages. The main difference between a green mortgage and a standard mortgage is that energy-efficient upgrade costs can be wrapped into a green mortgage’s loan amount.
Are energy-efficient mortgages tax-deductible?
You can deduct mortgage interest from your taxable income. And since you're borrowing more money upfront and paying more mortgage interest over time, you’ll probably get a larger tax deduction with an energy-efficient mortgage than you would with a regular mortgage. Of course, this benefit only applies if you itemize when you file your tax return.
How can an energy-efficient mortgage impact my home's value?
An energy-efficient mortgage can increase your home's value by financing improvements that make the property more attractive to buyers. Energy-efficient upgrades, such as solar panels, high-efficiency HVAC systems and new insulation, typically boost a home's resale value. Homes with solar panels sell for about 4% more on average, and energy-efficient features help homes sell faster because buyers value lower utility costs.
Is it possible to refinance into an energy-efficient mortgage?
Yes, you can refinance into an energy-efficient mortgage through FHA, VA, USDA or conventional loan programs. You'll need a home energy assessment, contractor bids for planned upgrades and lender approval based on projected energy savings. Refinancing into an EEM lets you roll the cost of energy improvements into your new mortgage while potentially securing a lower interest rate.
What if my actual energy savings are less than projected?
If your actual energy savings are less than projected, you're still responsible for making your full mortgage payment. Energy assessments provide estimates based on typical usage, but actual savings depend on how you use your home, weather conditions and whether improvements were installed correctly. Work with certified contractors who guarantee their work and maintain your energy-efficient systems properly to maximize savings.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Energy Star, “Energy Efficient Mortgages.” Accessed Nov. 7, 2025.
- U.S. Environmental Protection Agency, “Energy Efficient Mortgages.” Accessed Nov. 7, 2025.
- Veterans United Home Loans, “How to Get a VA Energy Efficient Mortgage (EEM).” Accessed Nov. 7, 2025.
- Fannie Mae, “You’ve Got Options When It Comes to Home Financing.” Accessed Nov. 7, 2025.
- Freddie Mac, “GreenCHOICE Mortgages.” Accessed Nov. 7, 2025.
- Consumer Financial Protection Bureau, “Understand the different kinds of loans available.” Accessed Nov. 7, 2025.
- U.S. Department of Agriculture, “Single Family Housing Guaranteed Loan Program.” Accessed Nov. 7, 2025.
- IRS, “Energy Efficient Home Improvement Credit.” Accessed Nov. 7, 2025.
