Energy consumption in residential housing accounts for 20% of total carbon emissions in the U.S. Here's how “green” mortgages can help us change the stats.

In 1992, the Department of Urban Housing and Development launched the Energy Efficient Mortgage (EEM) program in five states, which expanded nationally just three years later.

These loans provide additional financing on top of a borrower’s mortgage to fund various energy-efficient home improvements, from low-flow showerheads to double-pane windows and more.

Yet, despite its nearly 30-year existence, a New York Times estimate revealed that EEMs make up just 1% of the nation’s total home loans today.

With American homes generating one-fifth of the country’s total greenhouse gas emissions, it’s about time more people began taking advantage of this unique opportunity to protect the environment — and save a few bucks along the way.

What are “green” mortgages?

What Are "Green" Mortgages? - What are "green" mortgages?

Green mortgages, also known as energy-efficient mortgages (EEM), are home loans designed specifically for financing energy-efficient homes and energy-efficient home improvements.

Whether you’re buying, building, or simply refinancing, EEMs are available for a number of different scenarios.

You can use them to make your home more energy-efficient

You can use an EEM to make energy-efficient improvements to your current home or to a home you intend to purchase. These upgrades are based on the assessment of a qualified inspector and the specific recommendations they make. These might include:

  • Installing double-pane windows.
  • Replacing outdated air ducts.
  • Replacing old insulation.
  • And more!

You may be able to qualify for more financing

EEMs also allow borrowers to qualify for more financing. Homes with energy-efficient features are typically worth more than the same homes without those additions, so an EEM can help buyers qualify for a larger loan to afford the property.

If a buyer wants to purchase a home that could use some eco-friendly updates, an EEM can provide them with added financing to make a more competitive offer.

The rationale here is since energy-efficient systems can reduce a borrower’s utility bills, the homeowner can afford a larger monthly mortgage payment. As a result, lenders can offer prospective borrowers a larger loan.

Types of green mortgages

EEMs are available in three categories: FHA, VA, and conventional.

  • An FHA Energy Efficient Mortgage provides additional financing that equals the lesser of 5% of the home’s appraised value, 115% of the median area price of a single-family dwelling, or 150% of the national conforming mortgage limit in the area. An FHA-approved lender can provide this assessment.
  • A VA Energy Efficient Mortgage is available for military veterans and their families who are refinancing their existing home or purchasing a new property. If the borrower wants to make energy-efficient improvements to their home, they typically have six months following the closing of their loan to complete those upgrades. If the borrower hopes to purchase a home that is already energy-efficient, the lender may increase the loan by as much as $6,000, so long as it meets specific energy-efficient standards.
  • Conventional Energy Efficient Mortgages, a product of Fannie Mae and Freddie Mac, offer the greatest capacity for energy-efficient improvements, as these loans provide borrowers with additional financing up to 15% of the home’s value after improvements have been made.

EEMs are available through banks, credit unions, and other mortgage providers, just like the majority of residential mortgage products.

Who are green mortgages designed for?

What Are "Green" Mortgages? - Who are green mortgages designed for?

The short answer? Everyone

With EEMs available in FHA, VA, and conventional formats, nearly any current or aspiring homeowner can qualify for a green mortgage — but the energy-efficient improvements in question must make financial sense.

In other words, the amount you save in energy costs over time as a result of that new solar water heater or programmable thermostat must offset the cost of purchase and installation. Consequently, the greater opportunity for savings you have, the greater chance your EEM will be approved.

For instance, older properties with poor insulation, single-pane windows, faulty ductwork, and such are, in many cases, likely to receive financing.

Those who hope to make a more competitive offer

EEMs can also be an attractive option for buyers who wish to make a more competitive offer on a property. The extra financing will not only fund the energy-efficient upgrades, but it can also increase their offer price to beat out other buyers.

Those who intend to own a property long-term

EEMs make the most sense for long-term homeowners since the bulk of your savings come from cheaper utility bills as a result of reduced energy consumption. Homeowners who expect to stay in their home long-term can reap those savings benefits for many years to come.

What are the characteristics of a green home?

Not only are there official authorities that evaluate the energy efficiency of residential properties, but they also provide ratings to indicate just how energy-efficient each home is.

A good Home Energy Rating System (HERS) score

A Home Energy Rating System score, also known as HERS, is a nationally recognized system for measuring a home’s energy efficiency.

The score considers a variety of details, from wall thickness to HVAC systems and more, to produce a performance rating between 0 and 150.

Lower scores translate to more energy-efficient homes, with typical resale homes averaging around 130 and newer homes ranking around 100.

Here are some common features of a green home:

  • Airtight windows, doors, plumbing, air ducts, electrical outlets, etc.
  • Double- and triple-pane windows.
  • Cool roof (made with highly reflective roof paint/shingles).
  • Solar heating and cooling systems.
  • Furnaces and heat pumps.
  • Insulation with the proper R-value for your home and region.
  • Smart, programmable thermostats.
  • Abundant natural light from windows and skylights.
  • Ample trees for natural shade.
  • ENERGY STAR certified products (appliances, electronics, lighting, heating and cooling systems, water protection systems, etc.).

Are newer builds more green?

Generally speaking, newer builds are often more energy-efficient than older homes, but you can confirm whether or not a home is truly energy-efficient if it is LEED-certified or certified by ENERGY STAR.

LEED (Leadership in Energy and Environmental Design) is a global rating system, applicable to most building types, that provides a framework for truly green builds. Likewise, ENERGY STAR certified homes are at least 10% more energy-efficient than those built to code.

What are the advantages of a green mortgage?

What Are "Green" Mortgages? - What are the advantages of a green mortgage?

You can reduce your home’s impact on the climate

As expected, one of the primary advantages of a green mortgage is the impact on the climate — or rather, lack of impact.

Energy consumption from residential housing in America is responsible for a whopping 20% of the country’s total carbon emissions, and much of that energy is wasted due to inefficient features like poor insulation, outdated air ducts, and leaky windows.

You can save money

Saving the environment is just one perk of an EEM; homeowners can also save money.

Here are a few ways energy-efficient upgrades can improve your finances:

  • Sealing uncontrolled air leaks can result in a 10%–20% savings on your heating and cooling bills.
  • New energy-efficient heating or cooling equipment can cut your energy use by 20% or more.
  • Exterior or interior storm windows with a Low-E coating can save you 12%–33% on heating and cooling costs.
  • Energy-efficient windows, even basic double-pane windows, can save more than 10% on utility bills.
  • New appliances can reduce your energy costs by as much as $50 each year.
  • Programmable thermostats can save up to $180 a year on your utility bills.
  • Updating your insulation can save up to 20% on heating and cooling costs.
  • Homeowners with energy-efficient homes are also eligible for tax credits and rebates. For example, solar water heaters are eligible for a 22% federal tax credit through 2021 (click here for a searchable database with tax credits in your area).

You can increase the overall value of your home

In addition to the many ways energy-efficient upgrades can reduce your utility costs, these improvements can also increase the total value of your home.

Many buyers will pay more for homes with green features than those with outdated systems.

In other words, you’ll not only gain monthly savings on utilities, but you’ll make more money should you decide to sell your home later down the road.

How can I qualify for a green mortgage?

Good news! Qualifying for a green mortgage is about as easy as qualifying for a regular mortgage.

Despite the increased financing, eligibility requirements like your credit score and the size of your down payment will typically match those of a traditional mortgage.

Do your research

With this in mind, start your search by comparing quotes from reputable, established lenders. Also, check-in with your local housing authority, as they can often provide a list of lenders that can help you apply for a green mortgage. 

Your lender will need to verify that your home is energy efficient or that it can be

However, before you receive any financing through an EEM, your lender must verify that your home is either an energy-efficient property or that the improvements you’ll pursue to make it an energy-efficient property are cost-effective.

To determine the energy efficiency of your home, you’ll need a certified RESNET (Residential Energy Services Network) rater to inspect the property and provide an official HERS score.

If your score is high (remember: a high score = less energy-efficient), the inspector can recommend a number of updates to make your home more energy-efficient. An energy audit can cost a few hundred dollars or more, but in many cases, this expense can be financed as part of your EEM.

Your lender will conduct a cost/benefit analysis

Once you have some recommendations from a bonafide energy rater, your lender can take the reins. The lender can essentially conduct a cost/benefit analysis to make sure that the cost to implement and install energy-efficient features in your home is less than the money you’ll save in utilities over the life of the loan.

This allows your lender to approve financing for the original mortgage amount (excluding the added cost of energy-efficient upgrades) because the lender can confirm upfront that your utility savings will offset the additional financing you’ll owe.

Your funds will be put in escrow and you get to work

Once your loan has been approved, the lender puts the funds into an escrow account and you typically have three to six months to complete your improvements. After that window has passed, you’ll have a final inspection to confirm those upgrades have been made.

Quick tips to make your home “greener”

What Are "Green" Mortgages? - Quick tips to make your home "greener"

The potential for savings can be substantial with a green mortgage, but if you’re interested in simple ways to reduce your energy consumption and start saving on your utility bills today, you can do so without refinancing your home or purchasing a new property altogether.

Here are a few ways to make your home a little bit more environmentally friendly:

  • Replace your light bulbs with LED bulbs.
  • Turn your thermostat down when you leave your house and at night.
  • Unplug electronics and appliances when they’re not being used.
  • Upgrade to a programmable thermostat.
  • Trade your showerhead for a low-flow alternative.
  • Wash your clothes with cold water.
  • Use motion sensors for your exterior lights.
  • Switch to rechargeable batteries.
  • Turn down your TV brightness (try the default setting).
  • Upgrade your appliances and electronics to those with WaterSense and Energy Star labels.


Though they’ve been around for nearly 30 years, Energy Efficient Mortgage (EEM) programs are only now gaining traction.

These home loans provide eco-conscious homeowners and buyers with an opportunity to finance a variety of energy-efficient improvements, from purchasing new ENERGY STAR certified appliances to replacing outdated insulation and air ducts.

If energy efficiency is important to you, which it should be, seeking out a green mortgage could just be for you!

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Quicken Loans Disclosure - MoneyUnder30 receives advertisement compensation from Rocket Mortgage and it may or may not affect the review. MoneyUnder30 is independent and not affiliated or partnered with Quicken Loans.

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About the author

Photo of MoneyUnder30 writer Kate Van Pelt
Total Articles: 51
Kate Van Pelt is a writer and editor based in the Pacific Northwest. She has a bachelor’s degree in business management and English and has established her professional career in marketing and research writing. Since 2015, Kate has created educational materials covering a variety of financial topics, from home loans and credit cards to retirement accounts and estate planning. She spends her free time thrift shopping, making cocktails, and enjoying the outdoors with her dogs, Vira and Elmer.