An EEM is a loan made in conjunction with a VA purchase loan for an existing dwelling, or a refinance loan secured by that dwelling to add energy efficiency improvements.
Energy-Efficient Modifications
•Solar heating systems
•Solar heating and cooling systems
•Caulking and weather stripping
•Furnace efficiency modifications
•Clock thermostats
•New or additional insulation
•Water heater insulation
•Storm windows and/or doors
•Heat pumps
•Vapor barriers
*This list is not all inclusive. If you are unsure whether or not an improvement is considered energy efficient for VA purposes, contact your nearest VA Regional Loan Center.
Underwriting Considerations
Energy efficient improvements up to $3,000
Resulting increase in loan payment will normally be offset by a reduction in utility costs.
Improvements more than $3,000, up to $6,000
Does decrease in monthly utility cost offset the increase in monthly mortgage payment? Obtain cost savings information from utility companies, state agencies, manufacturer, or other resources.
Energy efficient improvements over $6,000
Use discretion when considering:
- Is the increase in monthly mortgage payments likely to exceed the projected reduction in utility costs?
- Is the veteran’s income sufficient to cover the higher loan payment?
Interest Rate Reduction Refinance Loans (IRRRL)
Generally, underwriting is not required on an IRRRL. However, if the addition of EEMs causes the new loan payment to increase by 20% or more, the underwriter must certify that the veteran qualifies for the higher payment.
Closing Documentation Required
Energy efficient improvements up to $3,000
Evidence of the cost improvements
•copy of the bid(s) or
•contract itemizing improvements and cost.
Energy efficient improvements more than $3,000, up to $6,000
•Evidence of cost of improvements and
•Certification that increase in monthly mortgage payments does not exceed the likely reduction in monthly utility costs.
Energy efficient improvements over $6,000
•The increase must be supported by the appraisal and Notice of Value. Appraisal is ordered “as repaired.”
Interest Rate Reduction Refinance Loans (IRRRL)
If the new monthly mortgage payment increases by 20% or more, provide the underwriter’s certification that the veteran borrower qualifies for the higher payment.
EEM Escrows
For improvements not completed prior to closing, provide evidence of an escrow or earmarked account:
•Formal escrow is not required
•Escrow must be 1 ½ times the bid VA Form 26-1820, Report and Certification of Loan Disbursement
•Complete item 23
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