A Mortgage That Saves Energy
So Whats A VA Energy Efficient Mortgage
It’s simply a loan feature that allows a VA mortgage applicant to borrower additional funds, whether purchasing or refinancing, to pay for energy saving home improvements.
What Type Of Improvements Are We Talking About?
All kinds of stuff, including, but not limited to:
• Solar water heater
• Solar heating
• Solar cooling
• Clock thermostat
• Vapor barrier
• Solar panels
• Installing insulation
• Weather proofing
• New storm doors or windows
How Much Can I Borrow?
It depends on the costs of your energy efficient improvements. VA has three (3) categories relative to borrowing capacity. Here are the requirements for each:
- Improvements totaling $0 – $3,000: You’ll need an itemized contractor’s bid. Also needed is a manufacturer’s information sheet for each item.
- Improvements totaling $3,001 – $6,000: In this category the lender will ask for everything above AND an energy audit showing the average yearly utility cost. Underwriting will review the documents to confirm that projected savings are likely to justify the cost.
- Improvements of $6,001 and up: Improvements exceeding $6,000 must be approved by both the lender and VA. You’ll have to provide everything requested in 1 and 2 above, and the appraisal has to support the loan amount (it cannot exceed VA’s maximum loan-to-value ratio).
What Are The Eligibility Requirements?
Generally speaking, if you qualify for a VA mortgage, you qualify for a VA Energy Efficient mortgage, with a couple of caveats: 1) When you seek a higher loan amount the payments will increase, and the higher payment must meet VA’s debt-to-income ratio requirements; and, 2) The increased payment must be offset by the reduction in energy cost you’ll enjoy by the energy efficient improvements. At first blush it seems that VA is assessing you twice by insisting on sufficient income income to cover the higher payment, AND requiring your monthly savings to offset the higher payment. But keep in mind, from an underwriting perspective the projected savings is theoretical, not guaranteed.
Other Facts & Features Regarding VA’s Energy Efficient Mortgage
- If you already have an energy efficient home, you can use an EEM. VA guidelines permit the lender to finance up to $6,000 in upgrades if your home meets HERS (Home Energy Rating System) standards.
- EEM can also be used to purchase older homes that need energy saving improvements.
- If your current residence needs energy efficient improvements you can refinance into an EEM.