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Loading...Loading...An energy-efficient mortgage (EEM) is a loan that lets you add the cost of home improvements that save energy to your mortgage so you can pay for them over time instead of all at once.
If you’ve ever looked at your utility bill and thought there has to be a better way, you’re not alone. A lot of homeowners want to make their houses more energy efficient, but the upfront cost of things like new insulation, better windows, or solar panels can feel out of reach. That’s where an energy efficient mortgage comes in.
An EEM is a type of loan that lets you wrap the cost of energy-saving improvements into your home financing. You can use one when you’re buying a new home or refinancing the one you already have. The basic idea is pretty simple: instead of paying cash out of pocket for upgrades, you add those costs to your mortgage and pay them off gradually as part of your regular monthly payment.
Lenders are willing to do this because energy-efficient homes cost less to run. Lower utility bills mean you’ve got more money available each month for your housing payment. Residential energy costs make up one of the biggest household expenses after the mortgage itself, according to the U.S. Department of Energy, so cutting those bills can have a real impact on your budget.
The term “green mortgage” gets tossed around a lot for this type of loan, and that’s fine as a nickname. But the official programs come from well-known places: the FHA, the VA, and the conventional loan market through Fannie Mae and Freddie Mac. Each program has its own rules about how much you can borrow for improvements, what kinds of upgrades count, and what documentation you need.
One thing worth knowing is that EEMs are not standalone loans. They’re add-ons to your primary mortgage. You still need to qualify for the base home loan first, and then the energy piece gets layered on top. For most programs, you don’t even need to separately qualify for the improvement portion, which takes a lot of the pressure off.
The process for getting an EEM follows a predictable pattern, and a lender like AmeriSave can walk you through each step so it doesn’t feel overwhelming.
It starts with a home energy assessment. Before any lender will sign off on the extra financing, a certified professional has to evaluate the property. This person looks at everything from how well the house holds heat and cool air to the age of the HVAC system, the quality of insulation, and the efficiency of appliances. They’ll use something called the Home Energy Rating System (HERS) to score the home and identify where improvements would have the biggest payoff.
After the assessment, you get a report that lists recommended upgrades along with their estimated costs and projected savings. This report usually needs to go to your lender within 120 days, so the clock is ticking once you get it done.
Your lender then reviews the numbers to make sure the improvements are “cost-effective,” which is a term that comes up a lot in EEM programs. It means the money you spend on upgrades can’t cost more than what you’ll save on energy bills over the useful life of those improvements. If a $5,000 insulation job will save you $400 a year for 20 years, that’s $8,000 in savings against a $5,000 investment. That passes the test.
Here’s a worked example to make the math more concrete. Say you’re buying a home valued at $300,000, and the energy assessment identifies $10,000 in upgrades that would cut your utility bills by about $125 a month. With an FHA EEM, you can add up to 5% of the property value for improvements, which works out to $15,000 in this case. Your $10,000 in upgrades falls well within that cap. So instead of a $300,000 mortgage, you’d have a $310,000 mortgage. At a 6.5% interest rate over 30 years, that extra $10,000 adds roughly $63 a month to your payment. But you’re saving $125 a month on energy bills. You come out about $62 ahead every single month.
That’s the core logic of the whole program. The improvements pay for themselves, and the lender gets a borrower who’s in a stronger financial position because of lower overall housing costs. When you’re comparing loan options, running these numbers can help you see whether an EEM makes sense for your situation.
Not all EEMs are created equal. The program you use depends on the type of mortgage you’re getting, and each one has its own caps, rules, and eligible improvements.
The FHA’s version of the EEM is probably the most well-known, and it’s a good option for buyers who want more flexible credit requirements. You can use it with a 15-year or 30-year FHA loan, and it’s available for single-family homes, townhouses, and eligible condos.
The biggest advantage? You don’t need to qualify separately for the improvement money. You only need to meet the standard FHA requirements for the base loan. That usually means a credit score of at least 580 with a 3.5% down payment, though your lender may have additional guidelines.
For borrowing limits, the FHA caps energy improvements at the lesser of 5% of the property’s value (not to exceed $8,000), or $4,000, whichever is greater. So on a $200,000 home, you could add up to $8,000 for upgrades. On a $60,000 home, you’d still get at least $4,000 because that floor kicks in. And here’s something a lot of people don’t realize: the EEM portion can push your total loan amount above the normal FHA lending limit for your area. According to HUD, FHA EEM loan limits can exceed the standard maximum by the amount of the energy improvements.
All improvements need to be cost-effective, and you’ll usually need a HERS report or similar energy assessment to back up the numbers. The upgrades also have to go beyond basic code requirements for new construction, or pay for themselves over time on existing homes.
If you’re a veteran, active-duty service member, or surviving spouse who qualifies for a VA loan, you can tack on an energy improvement component as well. The VA’s EEM lets you finance up to $6,000 in approved energy-saving upgrades on top of your loan amount.
The VA program works for both purchases and refinances, including the Interest Rate Reduction Refinancing Loan (IRRRL). One key rule: all improvements need to be finished within six months of closing. And if the upgrades cost more than $3,000, you’ll usually need documentation showing that the monthly savings will exceed the added cost. Under $3,000, many lenders can approve the work without that extra step.
Eligible projects include things like solar heating and cooling systems, insulation, weather stripping, storm windows, and water heaters. The VA keeps the list focused on permanent, energy-saving changes rather than cosmetic updates. You can get more details on what qualifies by working with a lender like AmeriSave who handles VA loans regularly.
On the conventional side, Fannie Mae and Freddie Mac both have their own green mortgage programs, and they’re actually more generous on borrowing limits than FHA or VA options.
Fannie Mae’s HomeStyle Energy mortgage lets you finance up to 15% of the home’s appraised value for energy improvements. That’s a big number. On a $350,000 home, you could borrow up to $52,500 for upgrades. The program covers a wide range of work, including solar panels, geothermal systems, wind power, and even paying off existing Property Assessed Clean Energy (PACE) loans. For smaller weatherization projects under $3,500, you might not even need a formal energy assessment.
Freddie Mac’s GreenCHOICE Mortgage works in a similar way. It allows energy-efficient improvement financing with any eligible mortgage product and property type, and it gives you up to 30 years to pay it off. Freddie Mac waives the energy report requirement for improvements under $6,500, which can save you time and money on smaller projects.
Conventional EEMs typically need a credit score of 620 or higher, which is a bit more than FHA requires. But the trade-off is that you get access to larger improvement budgets and a wider range of eligible upgrades.
The list of things you can finance depends on which program you’re using, but there’s a lot of overlap. Most EEMs cover the types of improvements that make a real dent in your energy consumption and utility costs.
Insulation is one of the most common upgrades. Adding or replacing insulation in attics, walls, and crawl spaces can dramatically cut how much you spend on heating and cooling. In a hot climate like we have here in the DFW area, good insulation keeps your air conditioning from working overtime all summer long.
Window and door replacements are another popular choice. Swapping out single-pane windows for double or triple-pane models with low-E coatings can make a noticeable difference in both comfort and energy bills. The same goes for upgrading to energy-efficient entry doors that seal better.
HVAC system upgrades are a big one too. A high-efficiency furnace, heat pump, or central air unit can cut your heating and cooling costs by a meaningful amount compared to an older system that’s past its prime. This is especially true if your current system is 15 or 20 years old.
Solar panels and renewable energy systems have gotten a lot of attention in recent years, and for good reason. Conventional EEMs through Fannie Mae even let you finance solar, geothermal, and wind power installations. The upfront cost of solar panels can run into the tens of thousands, so having the option to roll that into your mortgage instead of paying cash is a real advantage.
Other eligible improvements include things like water heater upgrades, efficient lighting systems, smart thermostats, weather stripping, and reflective roofing materials. Some programs also cover duct sealing and water-efficient fixtures like low-flow faucets and toilets.
It’s worth talking to your lender about exactly which upgrades count under the program you’re considering, because the lists can vary. AmeriSave’s team can help you match the right improvements to the right financing option.
Eligibility for an EEM starts with qualifying for the underlying mortgage. If you can get approved for an FHA loan, you can add the FHA EEM component. Same goes for VA and conventional loans. The energy improvement piece is layered on top of whatever loan product you choose.
For FHA EEMs, you’ll need a minimum credit score of 580 (or 500 with a larger down payment), at least 3.5% for a down payment, and a debt-to-income ratio that meets FHA guidelines. The good news is you don’t have to qualify for the additional improvement funds separately.
VA EEMs require that you meet the standard VA loan eligibility criteria. That means you need a valid Certificate of Eligibility (COE), and your lender will look at your credit, income, and residual income to make sure you can handle the payments.
Conventional EEMs usually call for a 620 credit score or higher. Debt-to-income requirements follow standard conventional loan guidelines, and you’ll need enough income to support the total loan amount, including the improvement portion. Fannie Mae and Freddie Mac may give you a bit more flexibility on DTI ratios for EEM borrowers because of the expected energy savings.
All EEM programs also require the property to meet certain standards. It has to be your primary residence in most cases, though conventional programs can sometimes apply to other property types. You’ll need a home energy assessment for larger improvement amounts, and the proposed upgrades have to pass the cost-effectiveness test.
If you’re not sure whether you meet the requirements, AmeriSave can help you figure out where you stand and which EEM path makes the most sense given your financial picture.
There are some clear benefits to energy-efficient mortgages, but they aren't always the best choice. Before you make a decision, it's best to look at both sides.
The most obvious benefit is that your utility bills will be lower. The U.S. Energy Information Administration says that the average American home spends about $145 a month on electricity. Depending on where you live and how big your home is, your total energy costs can be well over $200 a month when you add in heating costs for natural gas, oil, or propane. Even taking 20% to 30% off that number adds up to a lot of money over the life of a 30-year mortgage.
There is also the value increase. Properties that have energy-saving features tend to sell for more than similar properties that don't have them. People who want to buy a house care about ongoing costs. A house with newer insulation, windows that work well, and a good HVAC system will be more appealing than one that needs those upgrades.
EEMs can also help you get a bigger loan, which is another benefit. Your lender takes into account the lower utility costs, which lowers your monthly housing burden. This can improve your debt-to-income ratio and give you access to a slightly larger mortgage. When AmeriSave looks at your loan application, they take these expected savings into account. This can really change how much house you can afford.
You might also be able to deduct the interest you pay on the improvement part of your EEM from your taxes because it is part of your mortgage. You should talk to a tax professional about that, but it could be a nice bonus.
There are, however, some things to be careful of. The energy assessment makes the closing process longer and more expensive. You need to work with a certified assessor, wait for the report, and send it to your lender within the time frame set by them. People who are already worried about closing dates may find this extra step to be a pain.
You are also borrowing more money than you would have without the improvement add-on. This means that your mortgage balance will be higher and you will pay more interest over time. Your total debt is still higher, even if the extra monthly cost is less than the energy savings. If you sell the house sooner than you thought or if energy prices go down and the savings aren't as big as you thought, that matters.
Some programs also have fairly low borrowing limits. For example, the FHA's $8,000 limit might not be enough to pay for a full solar installation or a big HVAC repair. A regular EEM or a separate home might be better if you need to make bigger changes.
Getting an EEM is pretty much the same as getting a regular mortgage, but with a few extra steps. This is how the process goes from beginning to end.
Before you start looking for a home or agree to a refinance, talk to your lender about EEM options. Not all lenders deal with EEMs, so you need to make sure yours does. You can talk about your interest in energy-efficient financing early on at AmeriSave so the team can help you find the right program.
Next, look for a certified home energy inspector. This person will look at the property and give you the HERS report that your lender needs. You might be able to skip or make this step easier if you're buying a new home that already has the ENERGY STAR certification.
After you get the assessment, choose which improvements you want to make. Talk to your assessor and maybe a contractor to get a better idea of how much things will cost. Remember that the changes need to be cost-effective according to your program's rules, so concentrate on the ones that will save the most energy for the least amount of money.
Along with your regular loan application, send your lender the energy report and estimates for how much work needs to be done. Your lender will look over everything and decide how much of the cost of the improvement can be added to your mortgage.
Once you get the green light, the upgrades are added to your loan amount, and you close on the whole mortgage, including the energy part. Depending on the program, the money for improvements may be kept in escrow and given to you as work is done.
Some programs give you a certain amount of time to finish the work after closing.
Keep all of your receipts and paperwork. Before your lender releases the last funds from escrow, they may need proof that the improvements were actually made. This is just normal accountability to make sure the money went where it was supposed to go.
Energy efficient mortgages give you a practical way to make your home more comfortable, cut your utility costs, and build long-term value without paying for everything upfront. Whether you go with an FHA, VA, or conventional EEM, the key is matching the right program to your financial situation and the improvements you want to make. The extra steps in the process are worth it when you see lower energy bills month after month. If you’re thinking about buying a home that needs some efficiency upgrades, or you want to make your current place greener through a refinance, AmeriSave can help you look at the numbers and find the right fit.
An energy-efficient mortgage, or EEM, is a type of loan that lets you add the cost of home improvements that save energy to your mortgage. You can add the costs of upgrades like insulation, new windows, or solar panels to your home loan instead of paying for them in cash. Then, you can pay them off as part of your monthly mortgage payment. You can get an EEM to buy a house or to refinance one you already own. Check out AmeriSave's loan programs to see what might work for you if you want to know more about your financing options.
The program sets the borrowing limits. FHA EEMs limit improvements to 5% of the home's value, up to $8,000, or at least $4,000. You can get up to $6,000 for energy upgrades with VA EEMs. Fannie Mae and Freddie Mac's standard EEMs are the most flexible. They let you borrow up to 15% of the appraised value for improvements. With a regular EEM, that could be up to $45,000 on a $300,000 home. Your lender, the type of loan you have, and the details of your situation will all affect your actual limit. AmeriSave's FHA loan options can help you learn about what government-backed loans can do for you.
Yes, in most cases. Before your lender will give you more money, a certified energy assessor has to look at the property and write a report, usually using the Home Energy Rating System (HERS). The report lists suggested changes, how much they will cost, and how much energy they will save. Some smaller projects are not included. Fannie Mae's HomeStyle Energy program doesn't charge an assessment fee for weatherization improvements that cost less than $3,500. Freddie Mac's GreenCHOICE program raises that limit to $6,500. You can use AmeriSave's prequalification tool to find out where you stand before you schedule an assessment. This is the first step in getting a loan for your home.
Most EEM programs include changes that directly lower energy use. Some common upgrades that qualify are adding or replacing insulation, putting in energy-efficient windows and doors, upgrading HVAC systems, adding solar panels or other renewable energy systems, replacing water heaters, and putting in smart thermostats. Some regular programs also let you borrow money for things like wind turbines and geothermal heat pumps. The exact list depends on the EEM program you use, so it's best to ask your lender for the whole thing. You can find out more about AmeriSave's loan products that can help with home improvements in their resource center.
Yes. You can get energy-efficient mortgages to buy a home or refinance an existing one. You can refinance your home into an EEM if you want to make it more energy efficient. You can then use the extra money for eligible improvements. This is supported by the FHA, VA, and regular programs. An EEM based on a refinance works just like a purchase EEM: you get an energy assessment, find ways to improve, and add the costs to your new loan. Look at AmeriSave's refinancing options to see if this will work for your home.
No, not with the FHA EEM program. You only need to meet the requirements for the base mortgage amount. The energy improvement funds are added on without any extra requirements. This is one of the best things about the FHA version. There are some differences between VA and conventional programs, but in general, lenders look at how much money you can save on energy costs when deciding if you can pay back the loan. This can actually work in your favor. Your overall monthly expenses look better because your projected utility costs go down. This can help your debt-to-income ratio. Find out more about qualifying at AmeriSave to see if you meet the requirements.
Because you're borrowing more money, your monthly payment will be a little higher than it would be without the improvement add-on. But the point is that the extra cost should be less than or equal to the money you save on energy. For instance, if you add $10,000 for upgrades and your monthly payment goes up by about $63 (on a 30-year loan at 6.5%), but your utility bills go down by $125 a month, you're ahead by about $62 each month. That's a big difference over the course of 30 years. You can run your own numbers with AmeriSave's mortgage calculator.
There are a few things to think about. The energy assessment takes more time and money, which can make your closing date later. You are also taking on a bigger loan, which means you will pay more interest over the life of the loan. You might not have enough time to make up the cost of the improvements through energy savings if you sell the house in a few years. Some programs also have fairly low borrowing limits, which may not be enough for major renovations. But for many people who want to buy a home, an EEM is a good choice because it will save them money and make them more comfortable in the long run. You should talk to AmeriSave's staff about whether an EEM is right for your financial goals.
No, they're not the same. Your property tax bill is linked to a Property Assessed Clean Energy (PACE) loan, and it stays with the property if you sell it. An EEM is a type of home loan that is linked to your mortgage. One interesting connection is that Fannie Mae's HomeStyle Energy program lets you use EEM funds to pay off an existing PACE loan. This means you can combine that debt into your mortgage at possibly better terms. You can learn more about your options by going to AmeriSave's loan programs page and looking at the different loans that are available.
The energy assessment step will make the EEM process take a little longer than a normal mortgage. It can take anywhere from a few days to a couple of weeks to set up the assessment, do it, and send it in. The lender must get the assessment report within 120 days of it being written. After that, the rest of the process is pretty much the same as buying or refinancing a home: you fill out an application, get it approved, get an appraisal, and then close. Getting your assessment done early and planning ahead can help things move along. To get a head start on the financing side, start with AmeriSave's prequalification.
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