What Is a VA Energy Efficient Mortgage?

Posted by Lauren Schneider on Tuesday, January 5th, 2021 at 9:19am.

The VA Energy Efficient Mortgage GuideVeterans and reservists are among those who may be able to take advantage of a VA Energy Efficient Mortgage or VA EEM program. This option is best for those looking to make energy-efficient upgrades on their home that may help reduce their heating and cooling costs, as well as decrease the pollution and moisture that may enter a traditional home. Military personnel and their spouses may want to know more about the VA Energy Efficient Mortgage option before selecting a mortgage loan product.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Why Choose to Be More Energy Efficient?

Traditionally, owners of existing homes have had to contend with inefficient heating systems, older windows, and poor insulation. When such issues are not addressed, it gets more expensive to heat and cool a home, as treated air easily escapes into the outdoors. Simultaneously, this problem can also expose occupants to allergens and pollutants from the surrounding environment.

What is a smart way to enjoy long-term savings and a healthier home environment? Creating a better envelope around a home and investing in more energy-efficient improvements can ensure the comfort of all while also reducing utility costs. Such investments are better financially, for those looking to reside in their home for years to come.

What Is an Energy Efficient Mortgage?

Those who qualify can get coverage for acceptable energy improvements. Individuals may want to invest anywhere from a few hundred to a few thousand dollars. The good news is that there are three VA EEM tiers to meet those needs:

  • Tier 1 for improvements up to $3,000. This tier is the easiest to gain approval for, and homeowners will only need an estimate or quote from a contractor or the manufacturer information about the products used in the home.
  • Tier 2 for improvements between $3,000 and $6,000. This level requires an energy audit or a Home Energy Rating System report and a review of documentation. The energy audit is performed by the utility company.
  • Tier 3 for improvements over $6,000. All requests have to be approved by the VA and the lender.

After closing on a VA Energy Efficient Mortgage loan, the improvements must be completed within a six-month timeframe. If this is not possible, a lender may need to open an escrow account. The initial Home Energy Rating System (HERS) report fee can be as much as $800, but it may be reduced for veterans through their local utility company. Discounts may also be available through private firms.

What Are Acceptable Improvements?

Applicants should understand that there are guidelines that apply when using this loan product toward home improvement projects. Upgrades that are generally considered acceptable include:

  • Solar systems for heating and cooling
  • Thermal windows and doors
  • Insulation for walls, floors, attics, and more
  • Furnace modifications
  • Caulking and weather-stripping
  • Heat pumps
  • Storm windows and doors

The EEM loan cannot be used toward cosmetic upgrades or Energy Star rated appliances. Any improvement considered should be permanent and not easily removed.

How to Use an EEM Loan

This home loan can be used in a few ways. Those who have an energy-efficient home can make additional improvements. Additionally, buyers can purchase an older home and make energy improvements with an EEM loan. Finally, it is also possible to refinance into this type of loan if a current home can benefit from energy-efficient upgrades. A VA loan lender can discuss the options for those interested in improving their existing home's energy efficiency or looking to invest in such a home.

EEM Loans: Pros and Cons

There are some additional reasons to take out a VA EEM loan. A borrower can make energy-efficient improvements and buy a home with a single loan. This loan comes with a low VA mortgage rate and does not require a down payment.

Many homeowners are also interested in energy-efficient upgrades to increase their home's value when it comes time to sell. Savings on projects may also compound when there are local, state, and federal tax incentives and rebates available.

However, there can be some drawbacks to the VA Energy Efficient Mortgage. First, not all energy-efficient improvements will qualify for this type of loan. Therefore, homeowners may still need to pay out of pocket for upgrades that are not covered.

The VA EEM loan is a product that is not readily available with all lenders. Potential borrowers may have to research which lending institutions offer this mortgage loan product.

It may also take longer to complete the mortgage closing process with an EEM loan. Homeowners should thoroughly research VA EEMs before committing to one, so they don't make a mortgage mistake.

Learn More About the VA Energy Efficient Mortgage Loan

Veterans may want to research the VA loans currently available to determine which ones may best serve their needs. Some VA loans offer a small or zero down payment option, and others, like the VA EEM, can be used toward improvements on both existing and homes yet to be purchased.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

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