EEM: Using a VA Loan to Make Energy Efficient Improvements

Marcus Marion, CMA™ 3 weeks ago 0 5

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 actually roll the costs of those improvements into your VA loan, instead of paying for them all up front.

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 special 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.”

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 a number of 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.

Environmental Sustainability: When you make energy-efficient upgrades in a home, you’re also contributing to environmental sustainability by reducing your carbon footprint and energy consumption.

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.

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, 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 a lot of benefits for military members and veterans. Unfortunately, a lot of borrowers don’t even know this program exists! We hope this guide help you understand the potential value of the Energy Efficient Mortgage.

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