Energy Efficient Mortgages: How They Work, Who Qualifies, and How To Get Approved


Climate change is here – and it’s not going away – and governments around the world are increasing financial incentives to reduce emissions. This extends to the U.S. government, which has a neglected housing incentive in its back pocket – offering some homeowners a low consumption the mortgage option, which can help you finance efficiency improvements, save on utility bills and even increase how much house you can afford.

At a base level, an EEM increases the amount you can borrow when investing in efficiency upgrades. If you qualify, you can combine the cost of these efficiency improvements directly into your monthly mortgage payment. Projects that may be eligible include an efficiency audit as well as labor, equipment, inspections, and active and passive solar and wind technologies. Read on to learn more about energy efficient mortgages, including what they are, how they work, who qualifies for them, and how to get one.

What is an energy efficient mortgage?

There are many tax incentives and rebates to help you finance home energy efficiency projects, but an EEM can help you even before you buy a new home. In fact, this type of financing can be applied whether you are buying, selling or refinancing a home. Essentially, it’s an add-on program that helps you borrow more from a direct lender loans”}” data-sheets-userformat=”{“2″:513,”3”:{“1″:0},”12″:0}”>direct lender loans to improve the energy efficiency of your home.

If you’re a new home buyer, an energy efficient mortgage can also help you buy a more expensive home. It takes into account the expected lower utility costs of an energy-efficient home, so you can afford a slightly higher monthly mortgage payment.

What types of loans does an EEM cover?

Regardless of what type of loan you are applying for, you can get an EEM through a conventional loan, FHA loan, or VA loan. A conventional loan is a mortgage that is not assisted or insured by a government agency. A FHA loan is a mortgage that is insured by the Federal Housing Administration. Finally, a VA loan is a mortgage that is insured by the United States Department of Veterans Affairs and is only available to qualified military personnel, reservists, and veterans.

Although the resources for energy efficiency incentives may vary from state to state, the most common conventional loans, Fannie Mae and Freddie Mac, both offer energy efficiency financing.

The two are extremely similar, but there are a few differences, including the maximum threshold for basic energy efficiency and water improvements without reporting or rating. For Fannie Mae, the threshold is $ 3,500; while for Freddie Mac it is equal to or less than $ 6,500. There are also some slight differences in their occupancy and ownership eligibility, as shown in the table below.

EEM comparison of Fannie Mae and Freddie Mac

Fannie Mae’s HomeStyle Energy Mortgage Freddie Mac’s GreenChoice Mortgage
Maximum LTV (loan-to-value ratio) Up to 97% Up to 97%
Financing of energy-related improvements Up to 15% of the appraised value of the property “as completed” 15% of the “on completion” value of the property
Occupation and eligibility of the property The 1 to 4 existing properties; prefabricated housing (no structural changes); all types of occupancy authorized 1 to 4 types of unit properties (condos, prefabricated houses and new and existing properties); prefabricated houses (no structural changes); cooperative units (if authorized)
Energy reports No energy report is required for: basic weatherization and water efficiency items up to $ 3,500; water efficiency devices; renewable energy resources, such as solar panels, wind devices and geothermal systems; repairing damage caused by environmental hazards or improving resilience No energy report required for: Basic energy and / or water efficiency improvements with an overall cost less than or equal to $ 6,500

Two takes on an EEM: Fannie Mae vs. Freddie Mac

Fannie Mae has an energy efficient mortgage called “HomeStyle Energetic Mortgage” that allows you to buy an energy-efficient home, or that will be after some upgrades. Like most energy-efficient finance, Fannie Mae requires that you have a energy balance done on the home by a Home Energy Rating System assessor or other qualified energy assessor.

Now, if the upgrades you make are less than $ 3,500 or meet certain criteria, like in the table above, then you can opt out of having the energy assessment done. For Fannie Mae’s HomeStyle Energy mortgage, basic bloat includes things like airtightness, duct sealing, insulation, smart thermostats and replacement of windows and doors.

However, it is always recommended to do an energy balance in any case, to discover the most effective ways to improve the energy efficiency of your home. The costs of the energy assessment and the energy retrofits that will be made to the home are factored into the purchase EEMA.



Freddie Mac also has an energy efficient mortgage called “GreenChoice Mortgage”. Like Fannie Mae’s EEM, Freddie Mac requires you to have an energy assessment of the home by a HERS assessor or other qualified energy assessor, but the threshold is a little different.

For Freddie Mac, if the total cost of the upgrades you make is $ 6,500 or less, you can forgo the energy assessment. In their terms, basic energy upgrades cover things like weatherstripping, insulation, airtightness, air conditioning or replacing heating with higher efficiency, solar water heaters, low flow water fixtures, high efficiency fixtures, programmable thermostats, and window and door replacements.

Again, having an energy assessment is highly recommended to determine the most cost effective areas where you can improve the energy efficiency of your home. Like Fannie Mae, Freddie Mac’s GreenChoice Mortgage allows you to incorporate the costs of an energy assessment and energy-efficient upgrades into the purchase mortgage.



For more information, contact your state’s energy office

Beyond energy efficient mortgages, there are also tax deductions and refunds you may be entitled to when performing energy upgrades in your new or existing home. For more information on energy efficient financing and where you can apply for an EES, see your state energy office.


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