What is the VA EEM Loan Process?

Veterans are lucky enough to have access to 100% financing with the VA loan program. While that sounds amazing, it gets even better. Those borrowers that want to make energy efficient changes to their home can also add an Energy Efficient Mortgage to their loan. The process is simple and there are no extra requirements to qualify for the program.

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You can make any of the following changes with the program:

  • Install energy efficient windows
  • Install energy efficient doors
  • Weather strip the windows and/or doors
  • Install solar panels
  • Add insulation throughout the home, especially in the attic
  • Install programmable heat pumps and thermostats

If you are a veteran and want to use the EEM program, simply follow the steps below.

Find a VA Approved Lender

The first crucial step is finding a VA approved lender. You must do this whether you want to make energy efficient changes or not. You need a lender that is experienced in VA financing because it does have specific guidelines.

We recommend that you shop around and apply with at least three lenders. You’ll likely get different rate and closing cost quotes from each lender. Choose the one that suits your needs the most. For example, the lowest interest rate isn’t always in your best interest. If the lender charges outrageous closing fees, you end up paying more for the loan than if you took the higher interest rate.

Pay close attention to the loan’s APR and the affordability of the monthly payments before choosing your loan.

Apply for the VA Loan

After you find a few lenders, apply for the VA loan. You can use the EEM program on a purchase or refinance. Apply for the appropriate loan and provide the lender with the following documents:

  • Paystubs for the last month of employment
  • W-2s from the last two years covering all of your jobs (if you had more than one)
  • Tax returns from the last two years if you were self-employed or worked on commission
  • Asset statements to prove you have funds for closing costs (if you don’t wrap them into your loan)
  • Proof of your eligibility for a VA loan (Certificate of Entitlement), if you don’t have it, the lender can get it for you
  • Purchase contract showing the purchase price and property details of the home you want to buy

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When you apply for the loan, you should also let the lender know you want to make energy efficient changes. Once the lender approves you for the VA loan, they can automatically add a maximum of $6,000 onto your loan amount. They do not need to re-qualify you for the loan. You are automatically eligible if you are eligible for the VA loan.

Get an Energy Audit

Once you let the lender know you want to use the EEM process, they will instruct you to order an Energy Audit. Your lender may work with professionals that conduct the audits or you may contact your local utility company.

The audit is a report that shows the savings you can reap with specific energy efficient changes. The report will show the lender how much lower your utility expenses will be in exchange for the $6,000 addition to your loan. This also lets the lender know which charges will be effective and which will not affect your payment. Those that do not provide any savings will not be allowed.

Closing on the VA EEM Loan

Once the appraisal and energy audit pass the VA requirements, you can close on your loan, assuming you qualify. The VA does not have a minimum credit score requirement or debt ratio maximum. However, most lenders don’t allow a debt ratio higher than 43% as that’s the national limit according to the Ability to Repay Rules.

When you close on the loan, the lender will pay the seller or your current bank as usual. They will then escrow the remaining funds. The lender will disburse the funds as the work is completed. You will be responsible for providing proof of the completed work. It’s up to the lender if they want to have someone inspect the work as well. Typically, you have 6 months to get the work done.

Once all work is completed, you’ll need another energy audit. This time it’s an inspection to make sure all work is completed and the energy efficiency changes as was predicted. Any money that is left will pay your principal balance down. You cannot receive any cash in hand.

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