Separate from any repair work, VA lets you roll the cost of energy efficiency improvements into a purchase or refinance. The amount is capped by law, the rules are specific, and there is a detail about entitlement that makes it quietly better than just borrowing more.
Based solely on the documented cost of the improvements. VA assumes the higher payment will normally be offset by lower utility bills.
Allowed only if the increase in monthly mortgage payment does not exceed the likely reduction in monthly utility costs. The lender has to determine and document that, using local information from utilities, municipalities or state agencies.
VA does not permit an energy efficient mortgage above $6,000 - that ceiling is written into federal law. It can be added to a purchase of an existing home or to a VA refinance.
VA's list includes, but is not limited to:
Heat pumps, furnace efficiency modifications such as replacement burners, boilers or furnaces, flue devices, electronic ignition replacing a standing pilot, and clock thermostats.
New or additional ceiling, attic, wall and floor insulation, storm or thermal windows and doors, caulking, weather-stripping and vapor barriers.
Solar heating and cooling systems, solar water heating, and water heater insulation.
Documentation is straightforward: bids or a contract itemizing the improvements and their cost, plus, above $3,000, the lender's written determination about utility savings.
VA calculates the guaranty on the whole loan including the improvements, but charges your entitlement only for the loan amount before the improvements were added. VA's own example: a Veteran with full entitlement borrowing $80,000 plus $6,000 of improvements gets a guaranty of 40 percent of $86,000, or $34,400 - while only $32,000 is charged against their entitlement.
On an interest rate reduction refinance with energy improvements, one extra rule applies: if the new payment is 20 percent or more above the old one, the lender must certify that it has determined you qualify for the higher payment.
Energy work can sit alongside a wider repair budget; the rules for that are on alteration and repair rules, and how required repairs are handled at closing is on repair escrows and waivers.
Source: VA Pamphlet 26-7, Lender's Handbook, Chapter 7, Topic 3 Energy Efficient Mortgages, citing 38 U.S.C. 3710(d) (current versions on KnowVA). VA rules change; confirm before relying on them. Lenders may apply their own additional requirements. Not a commitment to lend.
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