Wondering whether an Energy Efficient Mortgage is right for you? There are a lot of options when it comes to the VA loan, and an EEM is just one of the many ways to maximize your hard-earned benefit.
Energy Efficient Mortgages are an excellent option to pay for qualified improvements to increase a home’s energy efficiency and save money on utility bills. EEM homes can provide increased protection against heat, cold, pollution and moisture, and are also great at reducing your carbon footprint.
An Energy Efficient Mortgage, or EEM, is a loan program available through the VA which helps Veterans finance qualified energy efficiency-related home improvements.
A VA EEM is a great way to finance improvements for your home, especially when used in conjunction with other VA loan products like a streamline refinance.
There are many updates you are eligible to make with the VA EEM, including:
VA EEM Improvements typically need to be considered permanent to the property. Window air conditioning units wouldn't be considered permanent, and adding central air conditioning to a home wouldn't likely increase a home's energy efficiency.
Ineligible updates can include:
There are many benefits to making energy-efficient updates, especially through the VA. Even though you’ll reap the benefits of savings in future years, it is important to recognize the upfront costs of such updates.
There are three cost tiers of VA Energy Efficient mortgages:
1. Improvements totaling $0 – $3,000: This is the easiest tier to get approved. You will generally need to provide a copy of a contractor bid or quote itemizing the costs, and you will need to provide manufacturer information for each product.
2. Improvements totaling $3,001 – $6,000: In addition to the information required in the first tier, you'll also have to obtain an energy audit showing a year's worth of utility cost averages for the home. These documents will then be reviewed to determine if the proposed EEM improvements will significantly impact the utilities to be cost-effective.
3. Improvements of $6,001 and up: It's challenging to obtain an EEM greater than $6,000. Requests for this tier have to be approved by the lender and the VA. In addition, it's important to understand that financing the cost of acceptable energy efficiency improvements cannot count toward meeting the minimum loan amount necessary for VA loans utilizing second-tier entitlement.
The Veteran typically has six months after closing to have the VA energy efficiency improvements completed. Small fixes can be taken care of before closing. Otherwise, the lender may decide to open an escrow account for the improvement funding.
There's standard language on a VA appraisal that explains Veterans' ability to secure an energy-efficient mortgage. That same section also notes that the buyer may want to consider paying for a home energy rating score (HERS), a key step that kick-starts the process. Overall, if you meet the requirements needed for VA loan eligibility, you might be able to utilize an Energy Efficient Mortgage on a home purchase or a refinance.
The standard for new homes is a 100 HERS score. A score of 130 is ideal for a previously occupied home. HERS reports document how efficiently a home is operating and potential improvements. The HERS Index score ranges from 0-150. The lower the number, the more efficient a home is functioning.
There are three basic approaches to using a VA Energy Efficient Mortgage:
In the long run, an EEM can pay terrific dividends and reduce your carbon footprint. But every buyer's situation is different.
Depending on the property and your particular interest, talk with a Veterans United loan specialist about your energy efficiency options.
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