What Is an Energy-Efficient Mortgage?

An energy-efficient mortgage (EEM) lets you add the cost of energy-saving upgrades, such as insulation, a new furnace, or solar panels, to the loan you use to buy or refinance a home, so you pay for them over the loan term instead of in cash. FHA and VA both offer one: FHA lets you add a cost-effective package worth up to about 5% of the home's value, and VA lets you add up to $6,000. Conventional buyers can get a similar result through Freddie Mac's GreenCHOICE or Fannie Mae's HomeStyle Refresh loans, which finance improvements up to 15% of the home's as-completed value.

How does an FHA energy-efficient mortgage work?

An FHA EEM is an add-on to a regular FHA loan, not a separate loan. You can use it on a purchase, a no-cash-out refinance, or a 203(k) rehab loan, for one- to four-unit homes, single condo units, and manufactured homes. The FHA credit, down payment, and occupancy rules still apply; see FHA loan requirements.

What counts. The energy package is the set of upgrades you choose from a home energy assessment. It can include energy-saving equipment, solar and wind systems, labor, inspections, and the cost of the assessment itself. The financed part must be cost-effective, which FHA defines as costing less than the value of the energy it saves over the upgrades' useful life. On a new home, only upgrades beyond the local energy code count.

How much you can add. HUD Handbook 4000.1 caps the energy package at the lesser of:

1. the cost of the cost-effective package from your assessment, or
2. 5% of the lowest of these three figures: the home's adjusted value (generally the lower of price or appraised value), 115% of the area's median single-family price, or 150% of the national conforming loan limit. For 2026, that last figure is $1,249,125.

Example: on a $300,000 home in an area where the other two figures are higher, the cap is 5% of $300,000, or $15,000. If the assessment shows a $12,000 package is cost-effective, you can add $12,000. At the October 22, 2026 average 30-year rate of 7.32%, $12,000 adds about $82 a month in principal and interest. The add-on can push the loan above the FHA loan limit for your county.

Qualifying. The lender calculates your debt-to-income ratio, your monthly debts divided by gross monthly income, using the loan amount without the energy package.

Finishing the work. You cannot take cash out of the energy portion. On an existing home, work not done at closing is paid from an escrow account, and the upgrades must be installed within 90 days after the loan funds are disbursed, or the lender applies the unused funds to your loan balance. The escrow option is for existing homes, so on a newly built home, plan to have the upgrades in place by closing. If you combine the EEM with a 203(k) rehab loan, the 203(k) escrow rules apply instead.

What does the FHA energy assessment involve?

You must get a whole-home energy assessment before closing. The assessor must hold one of these credentials: Building Performance Institute (BPI) Building Analyst Professional, BPI Home Energy Professional Energy Auditor, Residential Energy Services Network (RESNET) Home Energy Rater, or a rater who meets your state or local rules for residential energy audits.

The report lists recommended upgrades, the estimated energy savings for each, and whether each one is cost-effective. The lender uses those savings figures to test the package, and the report must be no more than 120 days old. If the work you end up doing differs from the approved package, the lender needs a change order and a revised assessment. Any money for work that fails the cost-effective test goes toward your loan balance.

How does a VA energy-efficient mortgage work?

A VA EEM adds energy upgrades to a VA purchase loan or a VA interest rate reduction refinance loan (IRRRL), and it must close at the same time as that loan. Federal rules set two limits:

• Up to $3,000 based on the documented cost of the upgrades, such as contractor bids.
• Up to $6,000 if the increase in your monthly principal and interest payment is no more than the likely drop in your monthly utility bills.

Example: $6,000 at 7.32% over 30 years adds about $41 a month, so the upgrades need to be expected to save at least $41 a month in utilities to use the higher limit.

The VA loan can exceed the home's appraised value by the cost of the upgrades. Eligible work includes solar heating and cooling, caulking and weather stripping, furnace efficiency changes, clock thermostats, insulation, storm windows and doors, and heat pumps. VA suggests a home energy audit to identify upgrades, and in some areas the utility company performs one. The work generally must be finished before closing or within 6 months after, with the lender holding the funds in escrow. Ask your lender how much the larger loan raises your VA funding fee. For entitlement and credit rules, see VA loan requirements.

Is there a conventional energy-efficient mortgage?

Fannie Mae and Freddie Mac do not use the EEM name, but each has a loan that finances energy work:

• Freddie Mac GreenCHOICE. Finances energy and water upgrades such as insulation, air sealing, high-efficiency HVAC, solar water heaters, and window replacement, up to 15% of the home's as-completed value. It is available on one- to four-unit homes, condos, and manufactured homes, for purchases and no-cash-out refinances, and it works with Home Possible loans at up to 97% loan-to-value. The lender needs an energy report, such as a HERS report or a Home Energy Score, unless the basic upgrades total $6,500 or less. The work must be finished within 180 days of the note date, and a completion report must confirm it.
• Fannie Mae HomeStyle Refresh. Took the place of Fannie Mae's HomeStyle Energy loan and covers energy- or water-efficiency upgrades along with other improvements, up to 15% of the as-completed appraised value. It is available for purchases and limited cash-out refinances, on any occupancy type, and the work must be done within 180 days of the note date.

Both follow the normal Fannie Mae or Freddie Mac credit and down payment rules; see the requirements of a Fannie Mae or Freddie Mac loan.

How do you apply for an energy-efficient mortgage?

1. Pick the loan first. Decide whether FHA, VA, or conventional fits your credit, down payment, and eligibility, then ask lenders directly whether they offer the energy add-on for that loan type.
2. Get the energy assessment. For FHA, hire a rater with one of the credentials listed above and keep the report under 120 days old at closing. For GreenCHOICE, get an energy report unless your basic upgrades total $6,500 or less, and ask the lender whether other documentation is acceptable for your upgrades before paying for one. For VA, collect contractor bids and an estimate of monthly utility savings.
3. Get bids for the work. For FHA and VA, the lender compares the cost to the expected savings. For every program, the lender uses the bids to set the add-on, within that program's cap.
4. Close and escrow the funds. Money for unfinished work is held in escrow and paid out as the work is done.
5. Finish on time. Meet your program's deadline (90 days after the loan funds for FHA on an existing home, generally 6 months for VA, 180 days for GreenCHOICE and HomeStyle Refresh). The lender or rater may inspect the work, and unused funds go toward your loan balance.