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Energy-efficient mortgage: what it is and how to get one

A green mortgage can help pay for an energy-efficient home or improvements

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Whether you're hoping for lower utility bills or you're worried about how your housing choices might impact the environment, improving the energy efficiency of your home can make sense. After all, boosting energy efficiency has the potential to lower greenhouse gas emissions and other pollutants while helping you save some money along the way.

However, improving energy efficiency requires an upfront financial investment, and not everyone can afford this without a loan.

That's where energy-efficient mortgages (EEMs), also called green mortgages, come into play. These home loans can be used to purchase or refinance an energy-efficient home or a home that will meet energy-efficiency standards once improvements are made.

Read on to learn more about green home loans, the types that are out there and how they work.

Key insights

  • Green mortgages can be used in several different scenarios, including purchasing an existing energy-efficient home or financing upgrades.
  • The main types of energy-efficient home loans include conventional EEMs and energy-efficient loans through the FHA, USDA and VA.
  • While eligibility requirements for green mortgages are similar to those of traditional home loans, the home itself must be assessed by a third-party energy rater.

What is an energy-efficient mortgage?

An EEM is a lot like any other type of home loan, except that it is geared toward homeowners who are 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 let homeowners or homebuyers finance more than the purchase price of a home and use 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 then some) by paying lower energy costs during the years they own the home.

Eligible green upgrades can include solar panels, wind power, insulation and even new windows and doors that improve energy efficiency. Ultimately, the improvements that qualify for financing through an EEM can vary based on the home itself, the area the home is located in and other factors.

» MORE: Best mortgage lenders

How does an energy-efficient mortgage work?

Dennis Shirshikov, the head of growth for real estate investing platform Awning, 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.

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. Lenders considering a green mortgage application will also estimate the potential savings that green energy upgrades will yield for the homeowner over time.

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.

A homeowner typically has three to six months to complete the recommended upgrades for a green mortgage, depending on their lender and mortgage type. After the upgrades are completed, an inspection is required to receive a disbursement of the loan funds meant for reimbursement.

However, sometimes homeowners use an EEM to purchase a home that already demonstrates energy efficiency. In this scenario, a home energy rater still needs to assess the home to determine its eligibility based on the amount of energy savings the homeowner will likely benefit from.

» MORE: Do solar panels increase home value?

Types of energy-efficient mortgages

Green mortgages can come in many different forms, which is good news for borrowers who want to improve their energy efficiency without missing out on home loan benefits they may be eligible for. Here's a rundown of the types of EEMs you'll find today:

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 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 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.

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.

» MORE: FHA loans vs. USDA loans: 6 key differences

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.

» MORE: Current VA mortgage rates

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.

Energy-efficient mortgage requirements

Shirshikov 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.

Ultimately, you'll find out which energy-efficient upgrades qualify for an EEM when your home is assessed by an energy rater. 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 estimate of the monthly energy savings the homebuyer can expect from their upgrades.

» MORE: How to get a mortgage

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.


  • 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.


  • 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.

» MORE: Are solar panels worth it?

Where to get an energy-efficient mortgage

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.

Both conventional and guaranteed green mortgages are available from many different mortgage lenders, though options vary from lender to lender. 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. Our guide to VA lenders can also help you find out which lenders offer VA loans for energy-efficient upgrades.

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    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, energy savings gleaned from energy-efficient upgrades can more than make up for 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.

    What is the IRS energy tax credit?

    The IRS notes that homeowners who make qualified energy-efficient improvements after Jan. 1, 2023, can qualify for a tax credit up to $3,200. This energy efficient home improvement credit is available for improvements made through 2032.

    Bottom line

    EEMs are home loans that let you finance specific home improvements, and they can apply to purchase loans and refinance loans. These loans can be conventional mortgages or mortgages guaranteed by the FHA, the VA or the USDA.

    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. If you can find a way to make one of these mortgages work, it can substantially reduce your environmental impact, and the money you save on utility bills can be well worth the extra effort.

    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:
    1. Energy Star, "Energy Efficient Mortgages." Accessed May 21, 2023.
    2. U.S. Environmental Protection Agency, "Energy Efficient Mortgages." Accessed May 21, 2023.
    3. Veterans United Home Loans, "How to Get a VA Energy Efficient Mortgage (EEM)." Accessed May 21, 2023.
    4. Fannie Mae, "You’ve Got Options When It Comes to Home Financing." Accessed May 22, 2023.
    5. Freddie Mac, "GreenCHOICE Mortgages." Accessed May 22, 2023.
    6. Consumer Financial Protection Bureau, "FHA loans." Accessed May 22, 2023.
    7. U.S. Department of Agriculture, "Single Family Housing Guaranteed Loan Program." Accessed May 22, 2023.
    8. IRS, "Energy Efficient Home Improvement Credit." Accessed May 22, 2023.
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