| Implementing Sector | Federal |
|---|---|
| Category | Financial Incentive |
| State | Federal |
| Incentive Type | Loan Program |
| Web Site | https://www.energystar.gov/newhomes/mortgage_lending_programs/energy_efficient_mortgages |
| Eligible Renewable/Other Technologies | Solar - Passive, Solar Water Heat, Solar Space Heat, Solar Photovoltaics, Daylighting |
| Eligible Efficiency Technologies | Yes; specific technologies not identified |
| Applicable Sectors | Residential |
| Maximum Loan | Maximum loan limits can be exceeded by the energy improvements being financed. |
Energy efficient mortgages (EEM) enable homeowners to finance energy-saving upgrades for existing homes, including renewable energy technologies, or to buy new energy efficient homes. These mortgages are supported by the U.S. government, insured through the FHA or VA programs, helping borrowers who might not otherwise qualify for loans to pursue energy efficiency and protecting lenders from defaults.
FHA Energy Efficient Mortgages The FHA permits adding up to 100% of energy efficiency improvements to existing mortgage loans, subject to limitations. The maximum amount for energy improvements is the lesser of 5% of the property’s value, 115% of the median area price for a single-family home, or 150% of the Freddie Mac conforming loan limit. The loan amount cannot exceed the expected energy savings. These loans can be combined with other FHA programs and do not have FHA loan limits. A professional energy assessment is required. Borrowers can include closing costs and upfront mortgage insurance in the loan, accessible to those meeting FHA’s Section 203 (b) income requirements. Eligible properties include new and existing owner-occupied homes of up to two units, excluding cooperative units. Applications should be submitted through an FHA-approved lender.
VA Energy Efficient Mortgages The VA insures EEMs used with VA loans for purchasing existing homes or refinancing. Borrowers can get up to $3,000 based on improvement costs or bids, or up to $6,000 if energy savings outweigh the mortgage increase. The VA may approve higher amounts. The cost of personal labor is not included, and no extra appraisal is needed. The VA insures half of the loan if taken alone. Eligibility extends to military personnel, reservists, and veterans who should obtain a certificate of eligibility and apply through a VA-approved lender.
Conventional EEMs These mortgages, not federally backed, allow borrowing up to 15% of a home’s appraised value for energy improvements. Fannie Mae offers up to 5% for Energy Star new homes, accessible even to those with income constraints, by adjusting the debt-to-income ratio. Freddie Mac provides GreenChOICE mortgages, combining the Home Possible Mortgages benefits for more financing opportunities.
ENERGY STAR Partnership for Lenders This partnership program promotes lenders offering EEMs, allowing them to use the Energy Star brand. To participate, lenders must demonstrate EEM expertise and maintain a certain number of EEMs annually. This partnership is open to lenders providing any type of EEM.
