Making your home more energy efficient can help you save major money on your utility bills — but to save money, you’ll need to spend money on those green improvements. This is where an energy-efficient mortgage (EEM) comes in. With an EEM, current homeowners and prospective home buyers can finance energy-efficient improvements for both new and existing homes. You can potentially claim tax credits for many improvements through the end of 2025, but beware — new legislation brings many of these credits to an end starting in 2026.
MORE: Read about the best mortgage lenders for first-time home buyers.
Also referred to as a green mortgage, an energy-efficient mortgage is a type of home loan that allows you to buy or refinance an energy-efficient home or to finance green improvements to your home.
To qualify for an EEM, you must have a home energy rater or other professional complete an energy assessment on the house. This assessor lays out the estimated monthly energy savings to determine the value of the proposed green improvements. This information, known as the Energy Savings Value, is provided to the lender as part of the loan qualification process. Financing can only be approved after the assessment is submitted.
There are several common ways for borrowers to use an EEM. The first occurs when they purchase an older home that has an inefficient HVAC system, needs insulation or weather stripping, or has other structural problems that waste energy. In this case, the home buyer might purchase the home with an EEM, borrowing enough to cover both the house’s asking price and the eco-friendly updates.
The second common way to use an EEM is to purchase an energy-efficient home, such as an ENERGY STAR® certified home.
Finally, homeowners may also use an EEM to refinance their mortgage to fund energy-efficient improvements to their existing home.
There are numerous types of renovations that could potentially lower your energy usage and costs, but not all energy-efficient improvements will qualify for EEM lending. Generally, you can expect the following types of home improvements to qualify for EEM financing:
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Energy-efficient appliances, such as washers and dryers
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Energy-efficient windows
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Weather stripping and caulking
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Insulation in attics, walls, and floors
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Green heating and cooling systems, such as solar panels, wind power, or geothermal power
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Weatherizing treatments
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Tankless water heaters
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Duct system installations or repairs
The home assessment will help you identify potential improvements with high Energy Savings Values that will qualify for EEM financing.
If you want to catch a tax break for your energy-efficient home improvements, you’ll want to jump on these before the end of 2025. Due to the passage of the One Big Beautiful Bill Act earlier this year, most of the popular energy tax credits will expire.
Here’s what’s ending and when:
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Energy Star or the Zero Energy Ready Home program. This program gave a tax credit to those building energy-efficient homes. It ends for homes closed after June 30, 2026.
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Section 25D Residential Clean Energy Credit. This allowed a 30% tax credit for solar panels, geothermal systems, certain wind turbines, and battery storage technology. The tax credit ends December 31, 2025.
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Section 25C Energy Efficient Home Improvement Tax Credit. This program extended credits for energy-efficient upgrades to doors, windows, HVAC systems, and insulation. It ends on December 31, 2025.
What does this mean for you? If any of the above upgrades were on your radar for years to come, you can still capture a tax credit if you pay for the work on Section 25D and 25C credits before December 31 of this year. You have until June 30, 2026, to claim credits under the Energy Star or Zero Energy Ready Home programs.
Home buyers and homeowners can access an EEM through a conventional mortgage, FHA loan, or VA loan, although each program has its own requirements and rules.
Borrowers who want a conventional loan have the choice between two EEM products: Fannie Mae’s Homestyle Energy® Mortgage for purchasing or refinancing, and Freddie Mac’s GreenCHOICE Mortgage® for use with any mortgage product or property type.
With these conventional EEM loans, borrowers can access up to 15% of the home’s appraised value to use on qualifying green updates, while making as little as a 3% down payment.
For example, let’s say you want to purchase a $250,000 home and upgrade its windows, appliances, heating and cooling system, and water heater. You intend to put down $7,500 (3% of $250,000) and qualify for a mortgage loan for the remaining $242,500. With a conventional EEM loan, you can borrow an additional $37,500 (15% of $250,000) to use for the energy-efficient improvements on the house.
Under this type of FHA program, the Federal Housing Administration (FHA) insures both the original mortgage and the refinanced one on a borrower’s principal residence, as well as the cost of energy-efficient improvements made to the home.
Borrowers only have to qualify for the loan amount for the mortgage or refinancing loan, not for the portion of the loan they will use for green upgrades. In other words, the FHA energy-efficient mortgage allows borrowers to access more money than they may otherwise qualify for, as the additional funds are used for energy-efficient upgrades.
To qualify for an FHA EEM, the green improvements you are financing with the loan must be evaluated as costing less than the energy savings you expect to receive. The maximum amount of money you can borrow for your energy improvements with the FHA EEM must be the lower of either:
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A home energy assessment’s evaluation of the cost of the energy-efficient improvements or
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The lesser of 5% of the following:
As with typical FHA loans, FHA EEM borrowers must provide a minimum down payment of 3.5% of the purchase price — not including the portion of the loan that will finance the green improvements.
Military members, veterans, and qualifying military spouses may qualify for a VA-backed EEM to pay for energy-efficient improvements when purchasing or refinancing a home. This EEM program allows buyers to borrow up to $6,000 in addition to their approved VA loan amount.
VA energy-efficient mortgage borrowers are required to complete the green home improvements within six months of closing on the home.
If you’re refinancing a VA mortgage using a VA IRRRL loan, you’ll need to qualify for a higher mortgage payment if the cost of your energy improvements causes your payment to increase by 20% or more.
Yahoo Finance Tip: Looking for a reputable lender that offers energy-efficient mortgages? Check out our Guild Mortgage review. Guild has conventional, FHA, and VA EEM options. Veterans United also provides VA EEMs.
Energy-efficient mortgage (EEM) programs make it easier to roll the cost of energy upgrades into your home loan. Instead of taking out a separate loan for improvements like new windows, insulation, or solar panels, you can bundle them into your mortgage. The idea is simple: Reduce your utility bills, boost your home’s comfort, and potentially increase resale value, all while keeping financing straightforward. For many buyers and owners, it’s a way to save money now and in the long term.
When an EEM is applied to an existing home, it’s still referred to as an energy-efficient mortgage. This version is designed for homeowners who want to finance upgrades, such as efficient appliances or improved heating and cooling systems, without taking on a new type of loan. By rolling those costs into the mortgage, you can pay for improvements over time while reaping the benefits of lower energy bills and a more comfortable, updated home.
In real estate, EEM stands for energy-efficient mortgage. It’s a loan option that provides buyers and homeowners with a financial path to incorporate energy efficiency upgrades into the deal. Because lenders consider the savings on utility bills, an EEM can sometimes help you qualify for a slightly larger loan. If you’re an existing owner, it’s a way to modernize your home and reduce costs without taking on additional debt. In short, it ties energy savings directly to your home financing.
Laura Grace Tarpley edited this article.
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