Mortgages & Home Loans Financing Your Home Purchase How to Get an Energy Efficient Mortgage FHA energy efficient mortgages can exceed the sales price By Elizabeth Weintraub Elizabeth Weintraub Facebook Twitter Elizabeth Weintraub is a nationally recognized expert in real estate, titles, and escrow. She is a licensed Realtor and broker with more than 40 years of experience in titles and escrow. Her expertise has appeared in the New York Times, Washington Post, CBS Evening News, and HGTV's House Hunters. learn about our editorial policies Updated on December 28, 2021 Reviewed by Doretha Clemon Reviewed by Doretha Clemon Doretha Clemons, Ph.D., MBA, PMP, has been a corporate IT executive and professor for 34 years. She is an adjunct professor at Connecticut State Colleges & Universities, Maryville University, and Indiana Wesleyan University. She is a Real Estate Investor and principal at Bruised Reed Housing Real Estate Trust, and a State of Connecticut Home Improvement License holder. learn about our financial review board Fact checked by David Rubin Fact checked by David Rubin Facebook Instagram Twitter David J. Rubin is a fact checker for The Balance with more than 30 years in editing and publishing. The majority of his experience lies within the legal and financial spaces. At legal publisher Matthew Bender & Co./LexisNexis, he was a manager of R&D, programmer analyst, and senior copy editor. learn about our editorial policies Share Tweet Pin Email Photo: Olivier Le Moal / Getty Images Energy efficient mortgages have been around for a long time, long enough that most people have forgotten about this under-utilized type of financing. If you're holding off buying a foreclosure because the home has an older furnace that needs to be replaced or single-pane windows and you want dual-pane, an energy efficient mortgage might be your answer. An energy efficient mortgage can be rolled into your existing mortgage and you can use that money to pay for energy efficient improvements. It's easy to get an energy efficient mortgage. Borrowers may finance 100% of the improvements. There is no need to qualify separately for additional financing because the energy savings will most likely offset the increased mortgage payments. This means that yes, the lender calculates how much you will save on your utility bills by upgrading and making improvements, and the underwriter will use that dollar amount to reduce your ratios. This is important if your income to mortgage debt percentage is already at the maximum amount allowed for a PITI payment. Types of Energy Efficient Improvements That Qualify for an Energy Efficient Mortgage An energy efficient mortgage should result in substantial savings on monthly utility bills, plus energy efficient improvements may also increase the value of your home, in addition to helping to conserve valuable energy resources. Here are some types of improvements that may qualify for an energy efficient mortgage: Heating and cooling systemsInsulation in the attic, walls, and floorsEnergy efficient windows such as dual paneDuct system installation and repairsWater heatersEnergy efficient appliances such as washers, dryers, and refrigeratorsWeatherizationNew "cool" roofs Types of Energy Efficient Mortgages Three basic types of loans qualify for an energy efficient mortgage. Although the maximum amounts may vary, depending on the type of loan, the determination is based on the improvement reducing energy use, thereby offsetting the cost of the upgrade. Here are types of loans that offer energy efficient mortgages: Conventional loans purchased by Fannie Mae and Freddie Mac FHA loans VA loans FHA Offers a Popular Energy Efficient Mortgage Many home buyers take out FHA loans because the minimum down payment requirement is only 3.5% of the purchase price. If the cost of the improvements is less than the present value of the energy saved, FHA will let you add the cost of the improvements to your loan. The maximum amount of the mortgage must be the lesser of 5% of: the value of the property, or 115% of the median area price of a single-family home, or 150% of the conforming Freddie Mac limit Regardless of FHA guidelines, banks may have overlays that limit the amount. The guidelines permit $2,000 for weatherization in conjunction with a purchase or refinance. HERS Reports and FHA Energy Efficient Mortgage Buyers who qualify for an FHA loan automatically qualify for financing an energy efficient mortgage. However, the property must be evaluated for the improvement. For example, if the existing HVAC system is only five years old, the cost of a new system might not offset the savings and therefore will not qualify. An energy rater will prepare a HERS (home energy rating system) report. The cost of this report could vary between $250 and $800. Sometimes the cost of the HERS report can be rolled into the loan. The HERS report will: Recommend types of upgradesEstimate energy savingsEstimate life of upgrades Note Be aware that HUD guidelines give a buyer 90 days to finish the work. However, many banks require that the work be completed within 14 days. If you plan to order custom windows, for example, you might want to make sure those windows will arrive and be installed within the 14-day window. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. U.S. Department of Housing and Urban Development. “Let FHA Loans Help You.” U.S. Department of Housing and Urban Development. “Energy Efficient Mortgage Program.” U.S. Department of Housing and Urban Development. “FHA Single Family Housing Policy Handbook,” Page 459. Energy Star. “Energy Efficient Mortgages.” U.S. Department of Housing and Urban Development. “Section D. Energy Efficient Mortgage Program,” Pages 6-D-13, 6-D-14. U.S. Department of Housing and Urban Development. “FHA Single Family Housing Policy Handbook,” Page 412.