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VA Loans & The Energy Efficient Mortgage (EEM) Program

Chris Birk
The Mortgage Reports contributor

“Green” Mortgages From The VA

Living in a “green” home can be more than just an eco-friendly way to live. Living green can also be a means to lower energy bills, gain additional tax breaks, and reduce your household’s environmental footprint.

Today, U.S. mortgage lenders make it easier than ever to add eco-friendly features to your home.

Via the Energy Efficient Mortgage (EEM) program, military borrowers can finance improvements and repairs straight into their loans. The VA Energy Efficient Mortgage is a simple way to finance costs.

Plus, today’s VA mortgage rates are more than one-quarter percentage point lower than rates for a comparable conventional loan.

It’s an excellent time to consider a “green mortgage”.

Verify your VA loan eligibility (Nov 17th, 2018)

The Energy Efficient Mortgage (EEM)

Energy-efficiency is more important than ever to prospective U.S. homebuyers.

About 80 percent of today’s buyers say that a home’s eco-friendly footprint “somewhat-to-very-much” affects their buyings decision, according to research from the Shelton Group.

But, finding the right home, at the right price, with the right energy-efficient features can be a challenge. Energy-efficient features of a home are rarely listed on a home’s listing page; and, not all U.S. municipalities require a home seller to disclose energy and water usage over the prior 12 months.

Meanwhile, many homeowners opt to make energy-efficiency upgrades after closing on a purchase. This may include replacing windows or roofing; or a series of appliances.

It’s for homeowners such as these that the energy efficient mortgage is such a powerful option. Qualified VA borrowers can look to finance the cost of energy-efficiency improvements directly into their loans.

Choosing to “spend now to save later” can help veterans and military homebuyers lower their energy costs and realize long-term savings.

Verify your VA loan eligibility (Nov 17th, 2018)

EEM Loan : Acceptable Improvements

Energy efficient mortgages are available for all loan types, including fixed-rate mortgages and adjustable-rate ones. Under the VA program, borrowers can typically add up to $6,000 in qualified improvements to their new loan.

Acceptable upgrades via the EEM loan program include :

  • Energy-efficient windows and doors
  • Solar heating and cooling systems
  • Insulation for ceilings, walls, attics and other spaces
  • Heat pumps and clock thermostats

As part of the EEM program, plan for your home to be energy-audited; lenders will often want to verify that the benefits of the planned upgrades offset the costs.

A trained auditor will evaluate your home’s energy efficiency and tabulate a score based upon the Home Energy Rating System (HERS) index. The scale runs from 0 to 150. Lower scores suggest high levels of energy-efficiency.

The auditor’s report will list recommended improvements and detail their expected annual savings.

Note that a typical home resells with an energy rating of 130, according to the U.S. Energy Department. By comparison, the typical newly-built home is sold with a rating of 100.

This means that new homes are typically 30% more efficient than existing ones.

Local companies and utilities may perform free or reduced-cost energy audits for veterans and military homebuyers. Be sure to look for reputable firms with experience.

Saving Money Via EEM Loan Program

With the VA Energy Efficient Mortgage program, home buyers are typically given six months post-closing to complete their energy-efficiency improvements. This is true for improvements across all categories, including the purchase of new appliances and new windows, as examples.

From your home’s energy audit, your lender will know the expected costs of your improvement. Typically, those funds will be held in an escrow account, to be released after the respective upgrades are finished and inspected.

Even some simple energy-efficiency upgrades can make a big difference.

U.S. homeowners on average spend about $2,200 each year on energy costs. Just improving a home’s insulation and weather sealing — a relatively inexpensive project — can trim energy costs by 10% annually, according to the EPA.

The government’s Energy Star program also suggests other possible money-saving measures :

  • Replacing older, single pane window, which yields an average annual savings of $500
  • Installing programmable thermostats,  which yields an average annual savings of $180
  • Using efficient heating and cooling systems, which yields an average annual savings of $200

Beyond a monthly drop in energy costs, an energy-efficient mortgage can also bolster your home’s resale value. Studies and surveys continue to show that homebuyers are willing to pay more for homes with green features.

To be sure, an energy-efficient mortgage isn’t the best fit for every VA borrower. The funding fee most VA homebuyers pay will be calculated based on the full loan amount, including the costs of energy-efficiency improvements. It’s important to consider the upfront costs and compare them with your projected savings.

With energy costs rising, though, the energy-efficient mortgage (EEM) can be a terrific way to finance your pending home improvements.

Get Mortgage Rates Today

Mortgage rates have trended lower since the start of last year and have held beneath 4% for the last seven months. For home buyers using the VA Energy Efficient Mortgage (EEM) program, falling rates makes it less expensive to finance improvements.

Verify your VA loan eligibility (Nov 17th, 2018)