For homebuyers looking to make their new homes more energy-efficient, specialized financing options can help cover the costs of improvements while potentially lowering long-term utility expenses.

Energy-efficient mortgages, or EEMs, provide buyers with additional borrowing power to finance upgrades that reduce energy consumption, making homes more affordable to own in the long run.

EEMs are available through conventional, Federal Housing Administration and Veterans Affairs loan programs. These mortgages allow borrowers to finance energy-efficient improvements as part of their home loan rather than taking out separate financing. By incorporating these costs into the mortgage, buyers can spread payments over the life of the loan, often at a lower interest rate than other types of financing.

Benefits

One of the key benefits of an EEM is that it enables borrowers to qualify for a larger loan amount based on anticipated energy savings. Since energy-efficient homes typically have lower utility bills, lenders recognize that homeowners will have more disposable income to allocate toward their mortgage payments. This expanded borrowing power can be particularly useful for first-time homebuyers or those purchasing older properties in need of efficiency upgrades.

Process

To qualify for an EEM, homebuyers must undergo an energy assessment, typically conducted by a certified home energy rater. This evaluation determines the home’s energy performance and identifies cost-effective improvements, such as upgrading insulation, installing energy-efficient windows or replacing outdated heating and cooling systems. The assessment provides a report outlining the estimated savings and expected return on investment, which lenders use to justify the additional financing.

FHA EEMs allow borrowers to finance the lesser of 5% of the home’s value, 115% of the median area price or 150% of the national conforming mortgage limit. VA EEMs, available to eligible military personnel and veterans, offer financing for energy-efficient improvements up to $6,000. Conventional lenders may have their own guidelines, but many follow similar principles, incorporating energy-saving calculations into their underwriting process.

For buyers considering an EEM, working with an experienced lender familiar with energy-efficient financing is essential. Not all mortgage providers offer EEMs, and some may have additional requirements or limitations. Additionally, buyers should coordinate with their real estate agent and contractor to ensure upgrades align with both financing guidelines and personal needs.

Home Improvements

Beyond the financial advantages, energy-efficient homes contribute to environmental sustainability by reducing overall energy consumption. Improvements such as high-efficiency appliances, smart home technology and solar panels can lower carbon footprints while increasing property values. Many buyers also find that energy-efficient features enhance overall comfort, making their homes more livable year-round.

For homeowners interested in retrofitting their existing properties, refinancing with an EEM can provide a pathway to affordable improvements. By rolling upgrade costs into a refinanced mortgage, homeowners can spread payments over time and potentially benefit from lower interest rates compared to traditional home improvement loans.

As energy costs continue to rise, EEMs present a practical solution for buyers and homeowners looking to invest in efficiency while securing financial savings.