The Energy Efficient Mortgage

Category: Green Building     Author: Scott Allred     Posted: Wednesday - October 22, 2014

So you’ve heard about Energy Efficient homes, but what about an Energy Efficient Mortgage? The popularity and availability of Energy Star qualified homes has lead to the creation of mortgage products that recognize energy efficient homes cost homeowners less to operate on a monthly basis. Known as the Energy Efficient Mortgage (EEM), these products allow home buyers to stretch their debt-to-income qualifying ratios or qualify for a larger loan amount by adding the anticipated energy savings to the borrower’s income. Either way, the Energy Efficient Mortgage makes it easier for borrowers to qualify for loans on homes with specific energy-efficient improvements. 

A recent survey of local banks indicates few borrowers have requested these products in the past. Members of the Triad Green Building Council have embraced the Energy Star program and the number of qualified homes has increased dramatically in recent years. If you are refinancing or purchasing an Energy Star home, be sure to inquire about the Energy Efficient Mortgage.

There are two types of energy mortgages:

  • Energy Efficient Mortgage – Typically used to purchase a new energy efficient home, such as an Energy Star qualified home. 

  • Energy Improvement Mortgage - Finances the energy upgrades of an existing home that needs energy improvements. Upgrades may include upgraded insulation, Low-E windows, Energy Star appliances, higher efficiency HVAC equipment and water heaters.

To qualify for an Energy Efficient Mortgage, a borrower will be required to have the home verified by an inspector through a Home Energy Rating System (HERS).  The inspector verifies the home meets the EPA’s strict guidelines for energy efficiency. On an Energy Star qualified home, the HERS rating has been performed as part of the qualification process. The home will receive a score from the home energy rater along with an estimate of the anticipated energy savings when compared to a standard home.

If you are applying for an Energy Improvement Mortgage, the HERS inspector will identify the areas of greatest energy loss and suggest cost effective improvements. The report will show the HERS rating before and after the improvements are made and show the estimated annual energy savings from making the upgrades. The home buyer can then include the costs of the improvements in their mortgage loan, without any additional down payment, subject to the lenders restrictions.

An energy audit by a qualified HERS rater will usually cost $300 to $800 and will provide valuable information on the homes energy characteristics. The HERS rater will inspect the home’s HVAC systems, windows, and insulation levels during the inspection. Additional performance tests such as the Blower Door test and the Duct Blaster test may be performed to determine the air leakage in the home. A listing of qualified HERS raters can be found at www.

Energy Efficient Mortgages are sponsored by federally insured mortgage programs, such as the FHA and VA, and the conventional secondary mortgage markets such as Fannie Mae and Freddie Mac. There is also a Veterans Affairs Energy Efficient Mortgage available to qualified military personnel and veterans. Energy Efficient Mortgages are available as Standard Fixed Rate, Adjustable Rate Mortgages (ARMs) and Balloon Mortgages.

If you are considering purchasing an Energy Star home, or making energy efficient improvements to your existing home, be sure to ask your lender about Energy Efficient Mortgages. If they are not already familiar with the product, ask them to learn about EEMs or find a lender that is experienced and can guide you through the different programs.

Scott Allred is chairman of the Triad Green Building Council and the owner of Precept Construction. He can be reached at or 286-6811. For additional resources on green building, visit
The Triad Green Building Council serves members of the Greensboro, High Point, Winston-Salem and Burlington homebuilders associations that are interested in learning more about green building techniques, products and services.

The council meets monthly with an educational program as the primary focus. Additional seminars and workshops are offered throughout the year for industry professionals and consumers. To find out more about the Triad Green Building Council, contact the Greensboro Builders Association at 855-6255.