Let’s face it, finding the perfect home can be tough at times. It is especially difficult for a buyer to find a home in excellent condition, but maybe the state is acceptable, or the seller will make some repairs. Possibly there is a need for more significant repairs that a VA renovation loan could remedy. What if a Veteran wants to make some minor improvements that would lower the monthly utility bill? Then, a VA energy efficient mortgage could provide the solution. The Department of Veterans Affairs defines an EEM as a loan that covers the cost of making energy efficiency improvements to a dwelling. The improvements are rolled into the VA loan.
VA Energy Efficient Mortgage Benefits
Whether a buyer decides to make improvements at the initial viewing or after the home inspection or VA appraisal, including utility bill saving improvements can make a difference for buyers. Once the VA appraisal is completed, a VA underwriter with the buyer’s lender completes a full review of the report. This report is called the Notice of Valuation (NOV) and is provided to the borrower. One part of the NOV mentions that the Veteran has the option of using a VA Energy Efficient Mortgage for making improvements. The benefits can make a huge difference and include the following:
- Potential No Money Down Financing
- Lower Utility Bills
- More Cash Flow (more savings, investing, paying down debt, and more)
- Finance improvements into the loan
- Keep funds in your pocket
VA Energy Efficient Mortgage Allowed Improvements
To use a VA energy efficient mortgage, the improvements must be on the VA approved list or approved by VA. As long as the funds are used to pay for one of the following, an energy efficient mortgage is possible.
- Solar heating and cooling systems
- Caulking and weather stripping
- Furnace efficiency modifications
- Clock thermostats
- Insulation in ceiling, wall, attic, or floor
- Water heater insulation
- Storm windows and doors
- Heat pumps
- Vapor barriers
How Much Can I Borrow on an Energy Efficient Mortgage?
Now you know the type of improvements allowed, so how much can you include in the mortgage? The loan amount can be increased up to $6,000 without VA review. Staying under $3,000 is the simplest. Between $3,000 and $6,000 requires a home energy audit by a qualified entity. For instance, most utility companies will perform this audit for borrowers. Going above $6,000 involves another level of scrutiny not only by the lender but also VA directly. It includes verification of increased value as well as borrower qualification for the higher level of improvements.
Underwriting Guidelines Recap:
- Up to $3,000 – Based only on documented improvement costs
- Up to $6,000 – Increase in monthly payment can’t exceed likely reduction in monthly utility costs
- More than $6,000 – Subject to a value determined by VA
Keep in mind; if the Veteran performs the labor, the loan may be increased by the cost of the materials.
Do Your Improvements Require a VA Renovation Loan?
We have talked about smaller, energy efficient improvements. What if the home needs painting, new counter tops, replacing the roof, or an additional project? That’s where a VA renovation loan offered by OVM Financial comes in. It allows non-structural improvements and costs up to $35,000 included in the VA home loan. Besides allowing more improvement options, it also uses the “as completed” appraised value plus the no money down benefit of a VA loan. Want to see if a VA renovation loan is for your property? Check out our article: “VA Renovation Loan Helps Veterans Buy a Fixer Upper.”
Does this sound interesting? Reach out to an OVM Financial VA Loan Officer.