Are VA loan energy-efficient improvements on your radar? If you’re buying or refinancing a home with a loan from the home loan program backed by the U.S. Department of Veterans Affairs (VA), they should be. Here’s what you need to know.
VA Loan Energy-Efficient Improvements
When it comes to home improvement, there are many reasons to go green. Some homebuyers focus on the benefit to the environment. Others appreciate the fact that energy-efficient features can raise a home’s property value. Plus, these features can provide homeowners with substantial savings on their energy costs over time.
What Is an EEM?
An energy-efficient mortgage, or EEM, is a home loan that lets borrowers include additional financing for cost-effective, energy-saving measures as part of their mortgage. As EnergyStar.gov explains, in addition to making energy-efficient features more affordable, these loans often extend debt-to-income qualifying ratios, which increases a borrower’s buying power by helping them qualify for a larger loan amount.
What about VA loan energy-efficient improvements? The VA does offer an EEM for that.
VA EEM Basics
As MilitaryTimes reports, a VA EEM is not a standalone product. Instead, it’s an add-on to a VA purchase loan or refinance loan. Eligible borrowers can receive additional funds in their mortgage to pay for qualifying energy-efficient improvements. An EEM can be a great way to finance the repair or replacement of old, inefficient systems or features.
For How Much Can You Qualify?
How much will the VA allow for energy-efficient improvements? As The Mortgage Reports explains, that depends in part on the costs of your planned improvements and the expected return on the investment.
- VA EEM costs up to $3,000: Lenders generally assume that the costs of improvements totaling up to $3,000 will be offset by the savings that they produce over time. Borrowers may be asked to produce bids from any contractors or a worksheet detailing proposed improvements and their expected costs.
- VA EEM costs between $3,001 and $6,000: When costs fall in this range, lenders must review the situation and determine that the increase in a borrower’s monthly mortgage payment will not outpace the savings produced by the improvements.
- VA EEM costs exceeding $6,000: If proposed improvements will cost more than $6,000, lenders evaluate the situation with care to ensure that the increase in the borrower’s mortgage payment will be offset by the savings produced by the improvements. Then, they must confirm that the borrower can afford the higher payment. In addition, they must determine that the planned improvements will result in an increase in the property’s value that is equal to or greater than the cost of the improvements.
What Can You Accomplish with a VA EEM?
As VA.org reports, a VA EEM can be used to accomplish a variety of energy-efficient improvements. Possibilities include the following:
- Solar heating and cooling systems
- Furnaces, heat pumps, and water heaters
- Clock thermostats and permanent air conditioning units
- Windows, door, and garage doors
- Vapor barriers
- Attic, ceiling, and floor insulation
- Caulking and weather stripping
Paying for Energy-Efficient Improvements with a VA EEM
As MilitaryBenefits.info indicates, using a VA EEM allows you to roll the cost of qualifying energy-efficient improvements into your home loan. As a result, you’ll have a single loan to pay off and a single loan payment to make each month. Plus, you’ll get the same competitive interest rate, which is generally much lower than the interest rate offered for a credit card or home equity loan. The funds for the improvements will be placed in an escrow account and disbursed as the work is completed. In most cases, you’ll have six months to finish the improvements. If the work isn’t completed in that time, your lender may apply any money remaining in the escrow account to your mortgage’s principal balance.
Are you ready to buy a home or interested in refinancing? Turn to the trusted professionals at PrimeLending: Manhattan, Kansas. Whether you are trying to decide between a VA loan or a conventional loan or are curious about energy-efficient mortgages, our friendly and knowledgeable team can answer your questions and guide you through the home loan process. Contact us today to discover how we can help you.