VA Energy Efficient Mortgages (EEMs) For Home Improvement Projects

The Newsdesk
The Mortgage Reports contributor

What Is A VA Energy Efficient Mortgage (EEM)?

The VA Energy Efficient Mortgage (EEM) is a special loan program which helps homeowners to finance the cost of a home’s energy-efficiency improvements.

The program is offered via the Department of Veterans Affairs as part of its Home Loan Guaranty program.

Eligible military borrowers can use the EEM loan for projects of all sizes, and the mortgage rates available are the same low rates available with all VA mortgage loans.

This can make the VA Energy Efficient Mortgage a better choice for eligible borrowers as compared to similar EEM-type loans available via the FHA and via Fannie Mae or Freddie Mac.

Also like other VA loans, the EEM mortgage has no specific VA loan limit. You can borrow as much as your lender will approve.

Verify your VA loan eligibility (Mar 7th, 2021)

What Is The History Of The VA Loan

In 1944, the Servicemen’s Readjustment Act was passed into law by Congress.

Better known as the G.I. Bill, the law establish a number of federal programs meant to help World War II veterans re-assimilate into their communities after years at war.

One such program was the VA Home Loan Guaranty program.

The VA Home Loan Guaranty is a mortgage finance program which guarantees loans made to military borrowers against loss. Because of the VA guaranty, mortgage lenders can offer “VA loans” at below-market rates with flexible terms for underwriting.

For example, the VA loan allows for 100% financing and no down payment; permits below-average credit scores for home buyers and refinancing households; and, mortgage insurance is never required — regardless of how much (or little) a home buyer chooses to put down.

Seven decades after its creation, the VA loan is hugely popular.

More than 630,000 VA loans were closed in 2015’s fiscal year — a 44% increase from the year prior.

Verify your VA loan eligibility (Mar 7th, 2021)

What Repairs Can You Make With VA EEM Loan?

The VA Energy Efficient Mortgage can be used to finance a wide range of energy-efficiency improvements to your home — so long as the renovations reduce your home’s monthly energy bills.

Improvement costs are added to your loan balance, and are repaid as part of your monthly mortgage mortgage payment.

According to the VA EEM official mortgage guidelines, allowable energy-efficiency improvements include, but are not limited to:

  • Installing a solar water heater
  • Installing a solar heating and/or cooling system (HVAC)
  • Performing caulking and weather-stripping of a home
  • Performing furnace efficiency modifications to an HVAC unit
  • Adding clock thermostats to a home
  • Adding new ceiling, attic, wall, and floor insulation to a home
  • Adding water heater insulation to a home
  • Installing storm windows or doors, including thermal windows or doors
  • Adding heat pumps to a home
  • Installing vapor barriers in a home

The program can be used in conjunction with a purchase loan; or with a refinance loan.

Verify your VA loan eligibility (Mar 7th, 2021)

How To Get A VA EEM Home Loan

Applying for a VA Energy-Efficiency Mortgage is not much different from applying for any other mortgage loan type.

Your mortgage lender will want to verify your income using W-2 statements and pay stubs; your credit score and credit history will be reviewed; and, your employment history will be verified going back two years.

However, with a VA EEM, you’ll also be asked to provide an energy audit of the subject residence. Many utility companies perform this service for customers with just a phone call, or you can hire a private third-party to complete the report.

The purchase of the home energy audit is two-fold:

  1. Show what can be done to reduce a home’s energy consumption
  2. Set expectations what can be saved monthly, with improvements

It’s then your responsibility, as the borrower, to document the expense of whatever improvements your plan to make.

Lenders will accept formal bids from contractors for this step. They’ll also accept a personal worksheet listing the improvements to be performed, and their costs.

How your mortgage approval proceeds will depend on the total cost of your project(s).

Verify your VA loan eligibility (Mar 7th, 2021)

When your VA EEM costs are less than $3,000

When your VA EEM costs are less than $3,000, mortgage lenders will typically “rubber-stamp” the improvements, but not always.

You may be asked to verify your expected monthly savings, so that the lender can make sure that the increase to your mortgage payment does not exceed the benefits of the project.

When your VA EEM costs are between $3,000-$6,000

When the cost of your VA EEM projects are more than $3,000, but less than $6,000, mortgage lenders will analyze your energy-efficiency improvements to determine whether the increase to your mortgage payment exceeds the benefits of your project.

For example, if your project(s) are expected to reduce energy bills by $103 monthly and the costs of said projects raises your monthly mortgage payment by less than that amount, your loan will meet VA EEM product guidelines.

VA EEM loans done as part of a VA Streamline Refinance are limited to $6,000.

When your VA EEM costs exceed $6,000

When the cost of your VA EEM projects exceed $6,000, mortgage lenders will perform a more sophisticated analysis of your projects and their proposed savings.

First, your lender will determine whether the increase to your monthly mortgage payment is offset by the monthly energy cost reduction.

Then, it will verify that you can afford the new, higher payment.

Lastly, the lender will verify that the proposed energy-efficiency improvements increase property value by an amount at least equal to the value requested via the VA EEM.

For example, if your home is worth $300,000 and you’re using the VA EEM home loan to add $15,000 in solar panels to your roof, your lender will have to verify that the home will be worth $315,000 after the improvements are complete.

Collecting Your VA EEM Monies

A unique aspect of the VA EEM home loan is that you can start your energy-efficiency improvements at any time — you don’t have to wait for closing.

If you complete your home improvements prior to closing on a purchase or refinance of home, you must only show that work has been completed within the last 90 days; and, receipts for the work.

For projects beginning after closing, or not yet finished as of closing, a reimbursement process is followed.

At the time of closing, your mortgage lender will hold the cash required for your projected project costs in escrow, to be released with proof of completion, and within six months.

If, for some reason, you are unable to finish the energy-efficiency work within six months, your lender will take the unused VA EEM funds and apply them to your mortgage’s principal balance.

What Are Today’s Mortgage Rates?

The VA EEM home loan is another way that the Department of Veterans Affairs helps military borrowers gain access to affordable homeownership.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your VA loan eligibility (Mar 7th, 2021)