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All About Energy Efficient Mortgages

When you buy a new home or refinance your present home, you can pay for energy upgrades with an EEM

If you can improve your house in a way that lowers your utility bills, a bank will lend you more money. Why? Because if you have lower utility bills, you'll have more money in your pocket each month to pay back the bank.

A relatively new home financing option — the energy efficient mortgage — can let home buyers qualify for larger loans than they might otherwise, while improving their homes with environmentally friendly, cost-cutting upgrades that can reduce energy bills.

An energy efficient mortgage (EEM) is a great way to help a family improve their home and save money while doing good for the environment, and securing one is a lot simpler than you might think.

How many types of EEMs are there?

Most mortgage lenders will offer three different kinds of energy efficient mortgages (known colloquially as “green mortgages”):

  • Conventional EEM. This type of mortgage is offered by lenders who sell their mortgage loans to Fannie Mae and Freddie Mac, and allows you to borrow an additional 15% over the appraised value of your home to make the improvements.
  • Federal Housing Administration EEM. This type of mortgage only allows you to borrow an additional amount equal to at least $4,000 and up to either 5% of your home’s value or $8,000, whichever is less. While the mortgage is smaller than a conventional EEM, this route lets you take advantage of Federal Housing Administration financing options.
  • Veteran’s Association EEM. This type of mortgage is similar to an EEM from the FHA, but is only available for past and present military personnel. It grants an additional $6,000 on your mortgage regardless of your home’s value.

Why should I worry about energy efficient improvements at all?

In most homes, between 50% and 70% of the energy costs of a home go to heating and cooling. The most common types of energy retrofit work are air sealing improvements and insulation improvements. According to NAIMA (the North American Insulation Manufacturers Association) over 60% of United States homes lack adequate insulation. Many of the changes that an EEM is likely to pay for are not particularly intrusive or expensive, but pay dividends in energy savings.

Why should I pay for improvements with an EEM?

There are two primary benefits to using an EEM to make your home more energy efficient. First, while the EEM is technically distinct from your main mortgage payment, it is rolled into the same bill when you pay it: that is, you will still only have to pay one bill every month for your mortgage payment. If you finance the upgrades some other way, you’ll have to make two payments every month, reducing your payment flexibility.

Second, an EEM retains the tax characteristics of your mortgage — in other words, the interest payments on the green mortgage are tax-deductible. This reduces your tax burden for the year compared to paying for the improvements some other way.

Often, EEMs are taken out by homeowners who are facing high energy costs in their current home but do not wish to move. Refinancing your home while including an EEM can allow for more and higher quality upgrades than the homeowner would otherwise be able to undertake, without a significant out-of-pocket cost or a significant increase in the mortgage payment.

How can I get an EEM?

The vast majority of mortgage lenders offer EEMs through secondary mortgage markets like Fannie Mae and federally insured programs like the FHA. As you should when securing any mortgage, talk to several lenders to find your options and decide which EEM is best for you and your energy-improvement goals.

Qualification is rarely a concern. If you qualify for a normal mortgage, you usually qualify for an EEM instantly – though this does not automatically roll the green mortgage into your normal mortgage. The only requirement for that is that the improvements you make to the home are cost effective. For example, if a new HVAC system and ductwork will cost $4,000 to install, then over the life of the system the improvements should be projected to save over $4,000 in energy costs.

You need a HERS Report

Since the money from a green mortgage is intended to be used to improve the energy efficiency of a home, most EEM mortgages are used for air sealing and insulation improvements. In some cases, an EEM can also be used for other types of retrofit work, including the installation of replacement windows, a new HVAC system, or chimney repairs. An EEM can be used for energy-generation equipment (for example, a rooftop solar array), although this type of work is usually prohibitively expensive considering the federally mandated cap on EEM size.

Most of the time, if you obtain an EEM, you cannot choose which upgrades to invest in. After talking with your lender, you will be visited by an energy rater who will examine your home and present you with a HERS (Home Energy Rating System) report. This report analyses the energy performance of your home and makes suggestions for improvements based on considerations such as climate, existing insulation levels, and the performance of the existing heating and cooling systems. This report costs about $500, though this amount is often either paid by the lender or rolled into the cost of the mortgage.

The HERS report includes a wealth of information about your home, its energy performance before and after suggested upgrades, the cost of those upgrades, and the energy savings expected from each of them. You can use these figures to help guide your decisions about how large an EEM you want and which projects you want to undertake.

You will have about 90 to 180 days after the loan closes to contact professionals to perform the improvements you have chosen to undertake. Finally, an inspection is done to verify that the improvements have been made properly, and the money from the EEM is paid to the borrower.

For more information on EEMs, see FHA: Energy Efficient Mortgages and Energy Star: Energy Efficient Mortgages.

Brentt Taylor writes for Mortgage Loan, owned by Mortgageloan Directories and Information LLC. The site provides information, tools and up-to-date news about mortgage and financial-related matters.


  1. tommerare | | #1

    Does anyone know anyone lending EEMs
    i've contacted 25 lenders and haven't found one lender. We all think EEMs went away yet this article is dated 11/26/12.

  2. Doug Selby | | #2

    Is this program over?
    We are also having trouble finding lenders, and someone at HUD said that they were no longer doing EEMs. Is this true?
    Being able to EASILY finance green upgrades at the time of sale would be a huge boon to our industry. You can only hope the government would do more to make these easier to get. Everyone wins!

  3. GBA Editor
    Martin Holladay | | #3

    Response to Doug Selby
    HUD still has an active webpage for this program:

    I sent the following question to Brian Sullivan, who works in the Office of Public Affairs at the Department of Housing and Urban Development: "Is the Energy-Efficient Mortgage program alive or dead?"

    On December 19, 2012, he responded: "Very much alive."

  4. Brentt Taylor | | #4


    I believe my colleague answered Mr. Kranz's question a few months back.

    Anyway, to answer your question, HUD has a searchable list of approved lenders. Only few banks and lenders are approved to offer this kind of mortgage. Here's a link for their Partner locator offering this type of mortgage:

    I hope this is not too late for your question Doug.

    Have a great year!

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