Your Guide to Energy-Efficient Mortgages in 2022

A study by the EIA found that homes built after 2000 were 30% larger on average but consumed roughly the same amount of energy as older homes.

Thanks to advanced technology and a new push to go green, many new construction homes take energy-efficient design into serious consideration when constructing an energy-efficient home.

Small considerations like reducing drafts from single pane windows or insulated rim joists help newer builds save significantly more energy bills than older homes.

However, purchasing new energy-efficient appliances and repairs can add up quite quickly. A new HVAC system could range between $5,000-$7,000 for a 1500 foot home, and tons of minor repairs, such as weatherstripping and weatherizing an older home, can add up.

Fortunately, the US Department of Housing and Development offers energy-efficient mortgages, otherwise known as green mortgages, as a means to finance expensive energy-related repairs.

Contractors and developers can benefit from partnering with energy consultants who guide them and their customers on energy-efficient upgrades and mortgage programs that save their business and their customers the most money.

As energy prices continue to skyrocket in an uncertain energy environment, the push to go green has never been greater.

With that in mind, let’s discuss what an energy-efficient mortgage (EEM) is, what repairs it can finance, and how your customers can qualify.

What Is An Energy Efficient Mortgage (EEM)?

This type of mortgage is a federally backed loan that enables residential customers to finance eco-friendly upgrades to a single-family home.

An EEM or green mortgage can either be financed in a new mortgage or refinanced as a separate mortgage.

However, unlike most refinances, EEMs are added to the existing mortgage so that property owners don’t have to make two separate payments each month.

EEMs are available through convention loans, FHA-backed loans, or VA loans.

Loan requirements will differ between existing homes vs. new construction projects and loan types.

EEM Loan Eligibility

To qualify for an EEM through any loan program, the applicant must prove that the cost of renovations will be less than the total cost saved through energy improvements over the life of the loan.

For example, a contractor would hire an energy consultant to run a comparative analysis to see if the cost of installing a new HVAC system will be less than the total cost saved over X number of years (based on the length of the loan and current energy costs).

To determine cost-savings, contractors and builders are required to work with a qualified energy consultant to prepare an energy assessment based on the Home Energy Rating System (HERS).

According to HUD, energy consultants must be certified in the following areas to qualify for application:

  • Building Performance Institute Building Analyst Professional
  • Building Performance Institute Home Energy Professional Energy Auditor
  • Residential Energy Services Network Home Energy Rater

Thankfully, energy consultations and assessments can be rolled into an EEM by a lender.

Additionally, a homeowner must meet minimum credit and borrowing requirements in order to qualify for an EEM, whether through a new mortgage or refinance.

With that stated, how do EEMs differ for new builds compared to existing and older homes?

EEM Loan Requirements for New Construction Homes

HUD bases cost savings for financing energy efficiency improvements in new builds by using the International Energy Conservation Code (IECC) standards.

Builders must work with energy consultants to determine whether or not the cost of adding a new energy-efficient upgrade will be less than the cost savings estimated by the IECC.

From here, builders will need to work with residential customers to see whether or not they’d prefer to finance new upgrades through a green mortgage late into a project.

However, the amount a customer can finance through an EEM will be capped based on what loan program they choose.

EEM Loan Programs

Loan Programs Borrowing Limits/Eligibility
  • The total amount of a conventional mortgage + 15% of the home’s appraised value
  • 5% of the total home value (capped at $8,000)
  • Up to 115% of the median price of single-family homes in the area
  • Up to 150% of the national conforming loan limit
    • $6,000 above the VA loan
  • EEMs must be financed within 6 months from closing

What Improves Does an EEM Finance

EEMs can be used to finance any improvements to a home that provide energy savings. Examples of EEM financing include the purchase of:

  • Energy Efficient Appliances
  • Active/Passive Solar Systems
  • Weatherproofing
  • Energy Efficient Windows and Doors
  • Energy Efficient Roof Improvements
  • Home Insulation
  • Weatherstripping/Caulking
  • New Ductwork/Repair
  • New HVAC Systems/Individual Improvements
  • Water Heater
  • New Chimney/Repair

Seeking Out an EEM Assessment

Contractors and builders can significantly benefit from pointing their customers toward EEMs which help them finance energy-efficient repairs/installations that save them money.

However, to apply for an EEM, you must partner with a qualified energy consultant who can run a proper cost assessment to determine your customer’s loan eligibility. Not only will this help you determine if your customer is eligible, but an energy rater can also run a cost analysis to point you toward more areas of improvement that yield significant cost savings.

If you are seeking out a qualified energy consultant for an EEM assessment, contact us at (407) 604-3555 to speak to a representative or toll-free at 844-500-PATH.