The VA Power Environment friendly Mortgage (EEM): What It Is And How It Works

What is a VA Energy Efficient Mortgage (EEM)?

Let's say you want a solar water heater, thermal windows and doors, or some other energy efficient upgrade for your home.

The VA Energy Efficient Mortgage (EEM) is a special loan program that homeowners can use to finance the cost of these energy efficiency improvements.

The program is offered through the Department of Veterans Affairs as part of its VA loan program.

Eligible military borrowers can use the EEM loan on projects of any size, and the mortgage rates available are the same low interest rates available on all VA mortgage loans.

As with other VA loans, the EEM mortgage does not have a specific VA loan limit. You can borrow as much as your lender allows.

Check Your VA Loan Eligibility (May 14, 2021)

In this article (jump to …)

What upgrades can you make with a VA EEM loan?

With the VA Energy Efficient Mortgage, you can finance a wide variety of energy efficiency improvements in your home – as long as the renovation work lowers your home's monthly utility bills.

Upgrading costs are added to your loan balance and paid back as part of your monthly mortgage payment.

According to VA EEM's official mortgage guidelines, permitted energy efficiency improvements include, but are not limited to:

Installing a Solar Water Heater Installing a Solar Heating and / or Cooling System (HVAC) Performing Waterproofing and Weatherproofing a House Making Stove Efficiency Changes on an HVAC Unit Adding Clock Thermostats to a House Adding a New Ceiling, Attic, Wall – and floor insulation to a house. Adding insulation of the water heater to a house. Installing storm windows or doors, including thermal windows or doors. Applying heat pumps to a house. Installing vapor barriers in a house

The program can be used in conjunction with a home loan or a refinancing loan.

This means that a VA EEM mortgage is available to eligible home buyers and existing homeowners.

Check Your VA Loan Eligibility (May 14, 2021)

Benefits of an Energy Efficient VA Home Loan

An energy efficient home can do a lot more than just save money on utility bills. Home buyers may consider this option specifically to cut energy bills, but a VA EEM offers home buyers so much more.

Some advantages of an energy efficient house can be:

Increased comfort throughout the year Reduced damage to carpets and furniture Reduced air and noise pollution Improved indoor air quality Improved health

When you pay for these upgrades with a VA EEM loan, you get access to low mortgage rates and extended repayment terms.

This can be a much cheaper way to pay for energy efficient upgrades than using personal loans or credit cards, for example.

Also, when buying a home, keep in mind that the VA home loan does not allow a down payment. This allows you to finance potentially energy efficient upgrades and home purchases without any problems.

When you refinance, you may have the option of lowering your interest rate while funding your home renovations at the same time.

How to Get a VA EEM Home Loan

Applying for a VA Energy Efficiency mortgage is not much different from applying for any other VA mortgage.

Your mortgage lender wants to check your income on W-2 bank statements and pay stubs. Your credit score and credit history will be checked; and your employment history is checked back two years.

With a VA EEM, however, you will also be asked to carry out an energy audit of the property. This is also known as the Home Energy Rating System (HERS) report.

Many utility companies do this service for customers with just a phone call, or you can hire a private third party to complete the report.

The house energy audit has two goals:

Show what can be done to reduce a home's energy consumption. Set expectations about the amount of money that improvements could save each month

It is then your responsibility as the borrower to document the cost of the improvements you plan to make.

Lenders accept formal offers from contractors for this step. They also accept a personal worksheet detailing the improvements to be made and their costs.

How your mortgage approval expires depends on the total cost of your projects.

Check Your VA Loan Eligibility (May 14, 2021)

When your VA EEM cost is less than $ 3,000

If your VA EEM cost is less than $ 3,000, mortgage lenders will typically "stamp" (approve) the improvements, but not always.

You may be asked to review your expected monthly savings so the lender can ensure that the increase in your mortgage payment does not outweigh the benefits of the project.

When your VA EEM cost is between $ 3,000 and $ 6,000

If the cost of your VA EEM projects is more than $ 3,000 but less than $ 6,000, mortgage lenders will analyze your energy efficiency improvements to see if increasing your mortgage payment is outweighing the benefits of your project.

For example, if your projects are expected to cut energy bills by $ 100 per month and the cost of those projects add less than that amount to your monthly mortgage payment, then your loan will meet VA EEM product guidelines.

VA EEM loans granted under a VA Streamline Refinance (or "IRRRL") are capped at $ 6,000.

When your VA EEM costs exceed $ 6,000

If the cost of your VA EEM projects exceeds $ 6,000, the mortgage lenders will conduct a more granular analysis of your projects and the proposed savings.

First, your lender determines whether the increase in your monthly mortgage payment will be offset by the monthly reduction in energy bills.

It will then check whether you can afford the new, higher payment.

Finally, the lender will verify that the proposed energy efficiency improvements increase the property value by an amount at least equal to the value requested through the VA EEM.

For example, if your home is worth $ 300,000 and you are using the VA EEM home loan to add $ 15,000 worth of solar panels to your roof, your lender will need to verify that the home is worth 315,000 after the improvements are complete Has dollars.

Check Your VA Loan Eligibility (May 14, 2021)

Schedule for using your VA EEM funds

You can start your energy efficient improvements as soon as possible. This is a unique aspect of the VA EEM home loan. This means you don't have to wait for it to close.

But how does this affect you and your VA EEM funds?

If you are completing your renovations before closing a home purchase or home refinance, all you need to do is provide proof that the work was completed within the last 90 days, as well as supporting documentation for the work.

A reimbursement process is carried out for projects that start after completion or are not yet completed at the time of completion.

At the time of closing, your mortgage lender is holding the cash needed for your project costs in an escrow account. The money will be released within six months with proof of completion.

If for some reason you cannot complete the energy efficiency work within six months, your lender will take the unused VA EEM funds and apply them to your mortgage loan amount.

VA Energy Efficient Mortgage Alternatives

Because of the strict eligibility requirements for a VA loan, many homebuyers are not qualified for this type of mortgage because they are not veterans, service members, or military personnel.

Fortunately, a VA EEM isn't the only mortgage program for home buyers interested in energy efficiency improvements.

In addition to a VA EEM, buyers can choose between an FHA or a conventional EEM.

FHA Energy Efficient Mortgage

With an FHA EEM, you can take out a mortgage that covers the cost of energy efficient improvements including inspection, materials, and labor.

The mortgage also pays the cost of home energy appraisal, which is necessary to determine the total cost of the energy efficient improvements.

Unlike the VA EEM, the Federal Housing Administration limits the cost of energy efficient improvements that can be made to a home.

The maximum amount that can be added to an FHA loan is the lesser of:

The cost determined by the home energy rating, or less than 5% of: the adjusted value of the home, 115% of the median price for single family homes in the region, or 150% of the national compliance limit

These restrictions could make it difficult for homeowners to secure funding for the improvements that are to be fully covered.

However, there are no special admission requirements such as VA> for the FHA. Borrowers with credit scores as low as 580 may be eligible. So qualifying for an FHA EEM can be a little easier.

Conventional energy efficient mortgage

A conventional mortgage can also offer home buyers and homeowners the opportunity to make energy efficient improvements to their home.

In this way, borrowers apply for either the Fannie Mae Homestyle Energy mortgage or the Freddie Mac GreenCHOICE mortgage. Both are available through lenders across the country.

Like other conventional loans, these programs offer a 3% down payment and terminable personal mortgage insurance (PMI).

And the better your credit rating, the lower your mortgage rate.

Fannie and Freddie's EEM programs allow you to spend up to 15% of the home's “closed value” on energy efficient improvements.

"For example," says Fannie Mae, "an eligible buyer with a home worth $ 100,000 after upgrades can receive up to $ 15,000 (15%) from the mortgage transaction."

What are VA Mortgage Rates Today?

The VA EEM home loan is another way the Department of Veterans Affairs is providing military borrowers with access to affordable home ownership.

If you are buying a home in need of energy efficient improvements or own a home that could benefit from environmentally friendly upgrades, the VA EEM might be a great option.

Check your eligibility for this VA program and see if you qualify for today's low mortgage rates.

Check your new plan (May 14, 2021)

Related Articles