If you are a veteran with eligibility for the VA home loan, you may also be able to wrap the cost of energy efficient improvements into your loan. You don’t have to meet special requirements. If you qualify for a VA loan, you also qualify for the EEM (Energy Efficient Mortgage).
What Does the Energy Efficient Mortgage Cover?
With a VA loan, you can add up to $6,000 in energy efficient changes to your home. However, there are only certain changes you can make. The VA doesn’t allow every change. The most common allowed improvements include:
– The installation of energy efficient windows or doors
– The installation of weather stripping around windows and doors
– The installation of solar panels
– The installation of insulation
– The installation of programmable heat pumps or thermostats
You cannot include any of the following:
– The purchase of new energy efficient appliances
– The purchase of window air conditioner units
– The installation of a new roof or siding
Getting the Energy Audit
In order to qualify for the full $6,000 EEM, you will need an energy audit. This is done by a professional, usually from the utility company. They come out and evaluate the status of your home as it is. They look at its energy efficiency and decide how certain changes would affect it.
The report they provide shows you just how much you can save with each type of change. The lender then uses this report to determine if giving you the $6,000 is worth it. Basically, what the lender wants to see is that the higher mortgage payment will be offset by the savings you will reap on your utilities. If there isn’t a savings on your utility bills, the lender may not approve you for the EEM.
Qualifying for the VA Loan
Before you even qualify for the EEM, however, you have to prove that you qualify for the standard VA loan. Whether you purchase or refinance a home, you must qualify with the following:
– Minimum 620 credit score
– Maximum 43% total debt ratio
– Enough disposable income to meet the requirements for your area and family size
– Stable employment/income
– Certificate of Entitlement
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What if You Don’t Have the Rating Yet?
The VA loan is rather easy for veterans to qualify for as long as they can prove they are eligible for the program. You do this by having enough time served in the military. If you served during wartime, you’ll need at least 90 days of service. If you served during peacetime, you’ll need 180 days of service. You’ll also need an honorable or general discharge. You cannot have a dishonorable or bad conduct discharge in order to be eligible.
Closing the EEM and VA Loan
The final step once you provide the lender with all of the documents to qualify for the loan is to close on your VA loan with money for energy efficient improvements. If you already had the improvements done, you can receive cash in hand to cover the cost of what you paid. If you are going to have them done, the lender will keep your funds in an escrow account. As the contractor completes the work, the lender will disburse the funds accordingly. You will also need one final energy audit to make sure the work done provides the energy efficiency as promised.
If there are any funds left after the work is completed, the lender will use the money to pay down your principal balance. You can only receive the money that covers the actual cost of the energy efficient improvements. If you already had the work done, you’ll have to provide receipts so the lender knows exactly how much they owe you.
Energy efficient changes can make your home ‘greener’ and your pocketbook a little heavier. Using your VA loan to finance the changes can be a great way to lessen your footprint on the environment.