Meet VA EEMs: Energy Efficient Mortgages for Greener Homes

Thinking of improving your home to save on your utility costs every month? Installing solar panels, improving insulation, and other projects geared toward energy efficiency are financeable. VA Energy Efficient Mortgages serve as an example, a financing tool to help you live comfortably and sustainably in your home.

Understanding VA’s Energy Efficient Mortgages

VA Energy Efficient Mortgages or EEMs are used in conjunction with VA purchase or refinance loans. The VA will guarantee EEMs covering costs of energy efficiency modifications or improvements, which can be expensive if paid outright.

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Under VA EEMs, you can finance related projects between $3,000 and $6,000. The loan proceeds can go toward new storm windows/doors, additional insulation boards or solar heating and cooling systems.

You can also contact a VA Regional Loan Center near you for advice on energy-saving modifications eligible for a VA EEM. Check beforehand if your contemplated modifications do not violate the applicable building code in your state.

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Cost-Effectivity

Getting an Energy Efficient Mortgage will result in a higher loan payment as the financing is added on top of your existing or new mortgage payment. It would be wise to consider if the reduction in energy bills is enough to offset the increase in the monthly mortgage payment. This is especially warranted in cases where you have to spend more than $6,000 in energy improvements.

The VA does require closing documentation depending on the cost of energy improvements. If you plan to borrow $3,000, you will be asked to present a copy of contractor bid/s and contract itemizing improvements and their cost. If the loan asked is more than $3,000, up to $6,000, you will be required to show proof of the improvement costs and a certification that the increase in monthly loan payments will not exceed the projected reduction in monthly utility costs. For loans exceeding $6,000, an appraisal as repaired and a notice of value are required to support the increase in the monthly payment.

EEM and IRRRL

If an EEM is used in connection with the Interest Rate Reduction Refinance Loan or IRRRL, the lender will look into whether the EEM will cause the new loan payment to go up by 20% or more. If that happens, the lender must certify to the VA that the borrower can afford the higher payment. The VA may require an escrow account for costs on improvements not completed prior to loan closing.

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