EEM: Using a VA Loan to Make Energy Efficient Improvements

When using a VA loan to buy a home, you can keep that down payment money in your pocket by financing 100% of the purchase price. That’s what attracts so many military members and veterans to this program in the first place. 

But that’s not the only wallet-friendly benefit of the VA home loan program. 

Borrowers can also use the Energy Efficient Mortgage (EEM) option to cover the cost of energy efficiency repairs or improvements when buying a home. You can roll the costs of those improvements into your VA loan instead of paying for them all upfront. 

This borrower’s guide explains how you can use a VA Energy Efficient Mortgage to purchase a home and make it more energy-efficient, all in one convenient package. 

What Is a VA Energy Efficient Mortgage (EEM)?

The name of this program gives you a pretty good idea of what it involves. But let’s clarify it anyway. 

Definition: An Energy Efficient Mortgage (EEM) is a type of VA loan that covers the cost of making energy-efficiency improvements to a home. These improvements can include a variety of upgrades aimed at reducing energy consumption and costs over time. 

This program can be used when initially purchasing a home and also when refinancing a property that you already own. 

In their official handbook for mortgage lenders, the Department of Veterans Affairs explains that Energy Efficient Mortgages “can be made in conjunction with a VA loan for the purchase of an existing dwelling, or VA refinancing loan secured by the dwelling.” 

Utilizing a VA Loan for Energy-Efficient Upgrades

One of VA loans’ less well-known benefits is the potential to finance energy-efficient upgrades as part of the house purchase or refinance process.  

By allowing qualified borrowers to stretch out the cost of energy-efficient modifications over the course of the mortgage, the VA Energy Efficient Mortgage (EEM) program reduces the upfront costs associated with these upgrades.  

For VA loan eligibility, borrowers need to fulfill specific requirements. These include getting a VA appraisal to confirm the planned energy-efficient improvements’ worth and proving that the modifications’ estimated energy savings outweigh their cost. Borrowers also have to collaborate with authorized contractors who are certified to install energy-efficient technologies and conduct energy audits. 

After being accepted, borrowers can refinance to a VA loan to buy a new house, which they can use to pay for affordable energy-efficient improvements. With no more funding or out-of-pocket costs, this gives veterans and active military personnel the chance to invest in long-lasting upgrades. 

Up to $6,000 Worth of Improvements 

Through the EEM program, the VA allows up to $6,000 worth of improvements to be included in your home loan. This amount is intended to cover the cost of qualifying energy efficiency upgrades. 

But there are some specific rules and requirements for how much you can borrow with an EEM VA loan in terms of the dollar amount: 

• Home buyers and homeowners can borrow up to $3,000 based solely on the documented costs of the improvements. The documentation, in this case, can be a copy of the bid or contract that itemizes the cost of improvements being made. 
• Borrowers can also borrow up to $6,000 with an EEM as long as the increase in monthly mortgage payment does not exceed the likely reduction in monthly utility costs. In other words, the improvements must deliver monthly savings for the borrower/homeowner. 

Types of Improvements Allowed With an EEM 

When using a VA loan with the EEM option, you could make a wide variety of improvements to the home. The most important caveat here is that those improvements have to improve the energy efficiency of the house in some way. That’s the core focus of this program. 

Qualifying improvements may include, but are not limited to, the following items: 

• Solar heating systems, including systems for heating water for domestic use 
• Caulking and weather-stripping improvements 
• Furnace efficiency modifications 
• Clock thermostat installation 
• New or additional ceiling, attic, wall, and floor insulation 
• Energy-efficient water heater insulation 
• Storm windows and/or doors, including thermal windows and doors 
• Energy-efficient heat pumps 
• Vapor barriers designed to improve energy efficiency 

Have questions about the EEM program and the types of improvements you can make? Contact a VA-approved mortgage lender or use the official VA home loan toll-free number at (877) 827-3702. 

Benefits for Home Buyers

The VA loan Energy Efficient Mortgage program offers several benefits for home buyers and homeowners. Those benefits include the following. 

• Reduced Utility Costs: By financing energy efficiency improvements through the EEM program, home buyers can potentially reduce their long-term utility costs. This is achieved through upgrades such as solar heating and cooling systems, insulation enhancements, and other energy-saving measures. 
• Increased Comfort: Energy efficiency improvements can create a more comfortable living environment. They do this by better regulating indoor temperatures and reducing drafts or hot/cold spots in the home.  

Over time, these savings accumulate, continually reducing the impact of the initial investment in energy-efficient upgrades, which is often the down payment for the VA loan. Besides, the increasing trend of energy costs along the way makes the long-term money much more pleasant.  

At the end of the process, veterans can live in the comfort of their homes and, at the same time, they will be able to save substantial amounts on their energy bills. Hence, the house will remain affordable and sustainable for years to come. 

• Environmental Sustainability: When you make energy-efficient upgrades in a home, you also contribute to environmental sustainability by reducing your carbon footprint and energy consumption. The ecological consequences of utilizing the green VA loans for energy-efficient and renewable energy upgrades go beyond individual families.  

They acknowledge this by consuming less energy and fossil fuels, and, as an effect, they strengthen the struggle against climate change and protect nature. Reduced emissions of greenhouse gases will counter global warming, and, at the same time, conservation initiatives will increase the awareness of environmental well-being.  

Moreover, introducing renewable energy sources like solar panels is another technology that promotes the transition of the world to a green and clean environment. By choosing environmentally friendly styles, veterans are among the main contributors to humanizing the world for the next generations by making it a healthy and sustainable place. 

• Enhanced Property Value: Energy-efficient homes often have higher resale values and appeal to environmentally-conscious buyers. Investing in energy efficiency improvements through the EEM program can potentially increase the resale value of the property.  

These upgrades can make a big difference in the desirability of a property for people who are put off by high energy costs. Lower utility costs and improved comfort come with energy-efficient features, making real estate properties preferable in the real estate market.  

Hence, homes with energy-saving improvements get top prices and sell pretty quickly, not later than their non-efficient counterparts. Such an increase in value itself is a fantastic profit-making process, and they feel great satisfaction because their houses are not only environmentally friendly but also a source of financial reward in the future. 

• Financial Flexibility: The EEM program allows home buyers to finance energy efficiency improvements as part of their VA purchase loan or refinance loan. This provides flexibility and convenience without the need for separate financing arrangements. 
• Option to Cancel: Home buyers have the option to cancel the EEM if they decide not to proceed with the improvements after loan closing. 

How to Apply for an EEM Loan 

The VA Energy Efficient Mortgage application process can vary slightly based on the specifics of the property and the lender’s workflow. But it usually looks something like this. 

• Research and Consultation: Learn about the VA EEM program and consult with a VA-approved lender. 
• Pre-Approval: Get pre-approved for a VA loan with a lender experienced in EEMs. 
• Home Selection: Choose a suitable home eligible for VA financing or VA renovation loan, considering potential energy efficiency upgrades. 
• Energy Audit: Consider scheduling an energy audit to assess efficiency and identify improvements. 
• Loan Application: Complete the loan application, providing details on planned upgrades. 

• Loan Approval: Finalize the EEM details, including costs and potential increases in payments. 
• Closing: Schedule the EEM closing simultaneously with the VA loan. 
• Improvement Completion: Complete upgrades within six months after closing, if not before. 
• Enjoy Your Home: Enjoy the benefits of an energy-efficient home, including potential cost savings. 
• Optional Cancelation: You can cancel the EEM if you decide against improvements post-closing. 

As you can see, the VA loan EEM program offers many benefits for military members and veterans. The advantages of energy-efficient modifications go beyond just lowering electricity bills; they also include cost savings, financial incentives, enhanced property value, and environmental effects.  

Veterans can raise their living level, lessen their environmental impact, renovate their houses using VA construction loan, and upgrade their houses’ energy efficiency.  

With the increasing popularity of sustainable living techniques, it is becoming more apparent that veterans throughout the country would find it wise to use VA loans to finance energy-efficient upgrades. Unfortunately, a lot of borrowers don’t even know this program exists! We hope this guide helps you understand the potential value of the Energy Efficient Mortgage.