What is an FHA Energy Efficient Mortgage?

If you're looking to buy a home and would like to reduce your carbon footprint and do your part to be environmentally conscious, one option is an FHA Energy Efficient Mortgage (EEM).

This mortgage is one of several EEMs offered by government-backed home loan programs. In a nutshell, it allows home loan borrowers to finance cost-effective, energy-saving improvements into their FHA-insured mortgage, either to purchase or refinance.

While it's not a standalone loan – it's an add-on to a standard FHA mortgage – it typically has less-stringent credit and financial requirements. Whether you want to install energy-efficient windows or solar panels, an FHA EEM can help make your green home dreams a reality.

Let's take a look at how an FHA EEM works, eligibility requirements, pros and cons, and how to see what you're eligible for:

How an FHA EEM works

Here are the ins and outs of how an FHA EEM works:

Incorporating improvements into your loan

As mentioned, an FHA EEM folds in energy-efficient improvements into a single mortgage. These are administered by the Federal Housing Administration (FHA), which is part of the United States Department of Housing and Urban Development (HUD). Note that this isn't a second home loan or a standalone loan, it's rolled into your primary mortgage and the amount you can use for energy improvements is added on to your regular mortgage.

The main draw is that you won't need to foot the bill to do these upgrades up front. Instead, they can be factored into the cost of your mortgage, and you can spread out the cost.

What do FHA EEMs finance?

An FHA EEM includes the cost of energy-efficient improvements that you'd like to be made on a home. This can be used to purchase or refinance a home that is already energy efficient or to add energy-efficient updates to an existing property.

The key is that these upgrades need to be cost-effective. In other words, these improvements should save you money on energy costs. The price tag of the improvements needs to be less than the value of how much energy is saved over the estimated life of the improvements.

The exact types of upgrades can vary, and the energy-approved features can include installing: 

• Solar panels
• Storm windows
• Improved insulation
• Weatherizing an older home
• Winterizing an older home

FHA EEM eligibility requirements

In a nutshell, you'll need to be eligible for an FHA loan in order to be approved for an FHA EEM loan. If you have satisfactory credit, and have secured enough funds for a down payment, and steady income, you'll likely be able to qualify for an FHA loan.

 Let's take a closer look at what you’ll need:

• A minimum credit score of 500 (for a 3.5% down payment)
• A minimum credit score of 580 is acceptable (if you have at least a 10% down payment)
• DTI ratios of 33% for front-end (housing) and 45% for back-end (total)
• A steady source of income
• The home to be your primary residence
• The loan must be used to purchase or refinance a single-family home, two- to four-family unit, townhome, condo, or manufactured home
• A Social Security number and work in the U.S.
• Be of legal age

FHA loans as a whole are known to be easier to qualify for. They feature more flexible terms and lower minimum credit scores than other types of home loans. Because they're backed by the government that means that lenders take on less risk. In turn, they can offer less stringent requirements.

Maximum energy package: What to know

Here are some details you’ll want to be aware of when considering the maximum energy package.

Factors that affect how much you can borrow for upgrades

Technically, the FHA lets lenders add up to 100% of energy efficient improvements to your existing mortgage – but certain restrictions apply.

First, the FHA mortgage limits can vary depending on the county, state, and how many units are in a dwelling. You can check the limits on the home you have your sights on buying from the FHA mortgage limits lookup tool.

But one thing to note: FHA EEM loan limits can exceed the maximum FHA mortgage limit by the amount these upgrades add to your loan amount.

So how much can the upgrades exceed the loan amount? The amount capped for an EEM that's allocated for energy efficient upgrades is the lesser of 5% of:

• The value of the property
• 115% of the median area price of a single-family dwelling
• 150% of the Freddie Mac conforming limit

Whatever amount of the FHA loan is financed for, the energy efficient upgrades has to be cost-effective. In other words, the price tag of these improvements – which include basic repair and maintenance – is less than the value of energy saved. This is over the estimated life of these upgrades.

If you're interested in an FHA EEM loan, you'll need to get recommendations and analysis by a qualified home energy rater. They'll make suggestions on what should be added to your home to boost the energy efficiency, and what will fall under the "cost-effective camp. These will help determine the green upgrades that are covered under your mortgage.

FHA EEM rates and costs

Keep in mind these financial factors when considering this kind of mortgage.

Energy efficient mortgage rates

The mortgage rates for an FHA energy efficient loan are the same as the rates for FHA loans. You can qualify for a 30-year fixed or variable rate loan, or a 15-year fixed or variable rate loan.

The rates for a 15-year mortgage are generally lower than those of a 30-year one. In turn, it'll cost you less in interest during the life of a loan. However, with a 30-year mortgage, because you have more time to pay off the loan, you’ll usually have lower monthly payments.

Comparing FHA rates

FHA loan rates can vary from lender to lender. On average, the FHA loan rate for a 30-year mortgage is 6.08% in November 2025.

The FHA loan rate you'll receive hinges on a handful of factors, such as:

• Market conditions
• Personal finances
• Credit score
• DTI ratio
• Down payment

To get the best rates, you'll want to shop around. That way, you can do a side-by-side comparison. It’s a good idea to do your best to bring down your debt load and take steps to improve your credit score.

Pros and cons of an energy efficient mortgage

As it goes with any kind of financing, there are pluses and minuses that come with FHA EEM. Let's take a look:

Pros

• Higher DTI limits. An FHA EEM means you're eligible for higher DTI limits than with a standard FHA loan. The current DTI limits for an energy-efficient home are 35% for housing-related debt (aka front-end) and 45% for total debt (aka back end).
  The maximum qualifying DTI ratios for the standard FHA loan without the EEM component is 31/43 if you have a credit score of 500-579 (or no credit score) and 31/43 if you have a credit score of at least 580.
  You might qualify for a 40/50 if you have at least a 580 credit score and either no debt, or verified and documented cash reserves and a minimal increase in housing payment.
• More manageable payments. Instead of having to foot the cost of your upgrades up front, the costs are folded into your mortgage and stretched out over the life of your loan. In turn, it makes these improvements more affordable.
• Avoid high-interest loans. You won't need to take out a separate loan which can come with shorter terms and higher interest rates. Plus, it won't complicate your debt payments or overburden you with debt.
• Have more funds to put toward your mortgage. One of the potential pluses of an FHA EEM is that ideally, because you'll be saving on energy costs of energy-efficient loans, you'll have more money to put toward your mortgage payments.
• Tax deductible. The interest paid on an FHA EEM toward home improvements are usually tax deductible.

Cons

• Need to get a professional assessment. One of the requirements of getting such a mortgage includes having a qualified trained professional or home energy rater or trained professional give you a rating or energy assessment before you can qualify for any additional financing. Once you get an assessment, you have 120 days to submit it to the lender. This process takes extra time, cost, and hassle.
• Need to qualify for a higher loan amount. Because EEMs are an additional amount to what you would normally borrow for your home, you need to be mindful of the requirements for a higher loan amount. This could mean a higher credit score, lower DTI ratio, and a higher down payment.

Alternatives to an FHA EEM

Besides an FHA EEM, there are other home loan options if you want to finance your energy-efficient upgrades:

VA energy efficient mortgage (VA EEM)

A VA EEM includes up to $3,000 on the cost of energy efficient upgrades. This can include installing solar heating systems, weather stripping, storm windows, water barriers, or insulation.

To qualify, not only do you need to be an eligible service member, veteran, or spouse and meet standard VA loan criteria, you'll need to provide lenders documentation that the cost of these upgrades isn't more than the monthly savings on energy.

USDA Single Family Housing Guaranteed Loan Program

The USDA Single Family Housing Guaranteed Loan Program is a government-backed loan program makes home buying a possibility for low to moderate-income borrowers. This home loan includes making improvements. You'll need to meet income requirements, be a U.S. citizen, and the property must serve as your primary residence.  

You can use the proceeds from this mortgage toward energy efficient upgrades, such as installing appliances, solar panels, or insulation.

Conventional energy efficient mortgage programs

These are additional conventional EEMs which you can use to boost your home with upgrades. You can apply for these when you purchase or refinance a property:

• Fannie Mae's HomeStyle^® Energy Mortgage: The Fannie Mae HomeStyle Energy Mortgage is designed for low-income borrowers and used exclusively for energy efficient upgrades, such as improvements to heating and cooling systems, installing solar panels, geothermal systems, and wind power devices. Unlike the FHA EEM, most improvements under this program don't require an energy report. To qualify for this additional mortgage, the financed amount can't be more than 15% of the appraised home value, plus the LTV caps at 97%.
• Freddie Mac's GreenCHOICE Mortgage^®:  This energy efficient mortgage is for folks who have higher DTI ratios and housing expense-to-income ratios, but want to enjoy flexible funding. These mortgages feature up to 30 years of financing, and you won't need an energy report if you're doing improvements that fall under $6,500. Your financed amount can be more than 15% of your property value, and the LTV maximum is 97%.

Cash‑out refinance, home equity loans/lines, personal loans

Here are some other ways you can make your home more green:

• Cash-out refinance. You can use the funds from a cash-out refinance to spruce up your home with energy-efficient upgrades. There are no restrictions.
• However, when you do a cash-out refinance, while it can lengthen the life of your loan and give you a lower interest rate, you need to be mindful of higher monthly payments and costs of a second mortgage. Refinancing may increase finance charges over the life of the loan.
• Home equity loans and home equity lines of credit (HELOC). These are both ways you can tap into your home's existing equity to put toward energy efficient upgrades. The interest rates tend to be lower than credit cards and personal loans.
• Personal loans. Personal loans are known for their versatility. However, general-use loans and mortgages aren't designed for energy efficiency improvements. While their use is more flexible and you won't need to provide an energy report, the lending requirements might be more stringent. Plus, the interest rates might be higher.

How to see what you qualify for

Here are the steps to get approved and next actions for an FHA EEM.

• Check your credit. Before you apply for an FHA EEM, it's a good idea to check your credit score. You'll need a score of at least 580. The higher your score, the greater your odds of getting approved for the amount you need. Plus, you'll likely land more favorable rates and terms. You can check your credit at AnnualCreditReport.com. While that doesn't give you your score, you can often get your credit score through a credit card issuer, credit monitoring service, or loan statement.
• Mind your debt load. Remember: An FHA EEM has a maximum DTI ratio of 33% for front-end (housing) and 45% for back-end (total). Aim to pay off debt in order to keep your debt manageable and within limits.
• Shore up funds for a down payment. The minimum down payment for an FHA EEM is 3.5%. That said, the higher your down payment the lower your monthly payments will be. Plus, if you offer at least a 20% down payment, you won't have to pay private mortgage insurance (PMI).
• Get preapproved. A mortgage preapproval letter from a lender conditionally approves your home loan and gives you a loan amount and rate. It shows that you're a serious buyer, and are ready to make a purchase.

You'll need to gather documents to get approval, and your checklist should include recent paystubs, tax returns, personal identification, a list of monthly debt, a credit report, and rental information.

FAQ about FHA EEMs

You may still have questions about FHA energy efficient mortgages. Hopefully the following will help.

What is an FHA EEM?

An FHA EEM is a mortgage backed by the HUD that's used to purchase or refinance a home to make energy-efficient, cost-effective upgrades to a home that can help save on energy costs. This is an add-on to an FHA loan, and not an additional home loan.

What is true about the FHA energy efficient mortgage program?

This is available to you if you have a 15-year or 30-year FHA loan with at least a 3.5% down payment or home equity built in your home. In order to get an energy package with the additional financing for these green improvements, you'll need an energy report.

What's the maximum amount of the energy package allowed on the FHA EEM program?

The most you can finance on the amount for energy-efficient upgrades is the lesser of 5% of the value of the property, 115% of the median area price of a single-family dwelling, and 150% of the Freddie Mac conforming limit.

The bottom line: An FHA EEM can help you fund green Improvements

Getting an FHA EEM can be a flexible, savvy way to fund your green-friendly home improvements and enjoy the flexibility of an FHA – without needing to take out a second mortgage.

However, you'll want to be mindful of the extra requirements – such as getting an energy report – the advantages and disadvantages, and loan limits. It can help you determine if an FHA is the right choice for you.

If you're curious about applying for an FHA loan, you can check out what Rocket Mortgage® has to offer today.

To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 2/5/2024 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Schwab products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher priced loans are not allowed on properties located in New York. Additional restrictions apply. Not available in Texas. This is not a commitment to lend.

Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.