Financing Products and Home Energy Score
Buying or Refinancing a Home? Consider Financing and Mortgage Products Linked to Home Energy Score
In addition to providing valuable information about a home’s estimated energy use, a Home Energy Score report can help borrowers secure financing for energy efficiency improvements or qualify for greater purchasing power. Lenders know that energy-efficient homes have lower utility costs, and the money saved on utilities can be applied to a mortgage. This increased ability to cover monthly mortgage payments can in some cases help borrowers qualify for a larger loan amount.
Some lenders who offer Energy-Efficient Mortgages (EEM), also known as “Green Mortgages,” will request a Home Energy Score or similar report from the borrower. Freddie Mac, FHA, and Fannie Mae have linked some of their products or lending policies to Home Energy Score. Learn more below.
Fannie Mae’s HomeStyle® Energy Mortgage Loan
- Finance up to 15% of the “as-completed” home value for energy, water efficiency, and resiliency improvements with purchase or refinance
- Requires Home Energy Score or comparable report if financing improvements worth more than $3,500
- 2% stretch on debt-to-income ratios available for homes with a Home Energy Score of “6” or higher
- $500 incentive to lender on each loan
- Fund energy-saving enhancements with as little as 3% down, competitive interest rates (compared to PACE loans and other financing), and cancellable mortgage insurance if you’re a first-time homebuyer or you’re bundling HomeStyle Energy with HomeReady mortgage
Learn more in Fannie Mae’s fact sheet and video:
FHA's Energy Efficient Homes (EEH) “Stretch Ratio” Policy
- Allows lenders to provide a 2% stretch on debt-to-income ratios for borrowers purchasing or refinancing a home that meets minimum energy efficiency standards
- For existing homes to qualify, the Home Energy Score must be a “6” or higher, or reach a “6” or higher with financed improvements
Read the mortgagee letter about Home Energy Score here.
Freddie Mac’s GreenCHOICE Mortgages®
- Finance up to 15% of the “as-completed” home value for energy and water efficiency improvements with purchase or refinance
- Requires Home Energy Score or comparable report if financing more than $6,500 worth of energy and/or water efficiency improvements
- Financing terms up to 30 years
- Ability to close the mortgage prior to completion of improvements
Read Freddie Mac's post on home energy assessments and learn more about the GreenCHOICE mortgage in this fact sheet and video:
In addition to national lending programs, there are some state-specific financing options tied to Home Energy Score:
Vermont Energy Mortgage Pilot Program
In 2020, DOE funded a research award to Energy Futures Group (EFG) and the Vermont State Employees Credit Union (VSECU) to identify high-energy-cost homes in the mortgage process and offer financing and contractor solutions to make energy efficiency improvements. The process included pre- and post-improvement Home Energy Score analyses. Highlights of the pilot included:
- Up to 30-year fixed-rate mortgage loan for purchase or refinance
- 0.5% interest rate discount
- Minimum of 10% of loan must be used for energy improvements
- Read about the pilot here: https://energyfuturesgroup.com/mortgage/
For more information on other state-specific programs, visit the Database of State Incentives for Renewables & Efficiency (DSIRE).
Lenders interested in Energy-Efficient Mortgages
Energy-efficient mortgages can lead to energy savings, giving homeowners an opportunity to set aside more money for their monthly mortgage payments. Another benefit of an EEM is the potential for improvements to increase a home’s value, which benefits the lender and the homeowner.
A paper published by Freddie Mac compared the property sale price and loan default rates of energy efficiency-rated and unrated homes, as well as higher-rated and lower-rated homes. The findings included:
- Better-rated homes sold for 3-5% more than lesser-rated homes
- The default risk of rated homes is not, on average, different from unrated homes, once borrower and underwriting characteristics are considered.
- Loans in the high debt-to-income (DTI) bucket (45% and above) that have ratings appear to have a lower delinquency rate than unrated homes.
Lenders can use the following links to learn more about:
Fannie Mae’s HomeStyle® Energy Mortgage Loan click here.
FHA’s Energy Efficient Homes (EEH) “Stretch Ratio” Policy click here.
Freddie Mac’s GreenChoice Mortgage click here.
There are also many publications and articles about the benefits of EEMs, including the following: