How the HomeStyle Energy Mortgage Program Works
- Important HomeStyle Energy Mortgage Considerations
- Include the cost of energy-efficiency upgrades in your mortgage amount when you buy a home or refinance your mortgage
- Eliminates the need for a separate loan to finance energy-efficient upgrades
- Loan amount reflects as-completed, post-upgrade value of property
- Applies to both home purchase mortgages and refinancings
- Lenders can use a higher debt-to-income ratio which enables borrowers to qualify for a larger mortgage
- Improvements increase property value
- Reducing utility costs makes owning a home more afforable
- Potential to combine with other Fannie Mae mortgage programs including HomeReady and HomeStyle Renovation
- Limits on proceeds that can be used for upgrades (15% of property value)
- Additional borrower costs although some costs may be added to the loan amount
- Requires additional documentation and participation by lender and appraiser
- Limits on loan amount
- HomeStyle Energy Mortgage Overview
- How a HomeStyle Energy Mortgage Works
- Click on lenders belowMortgage RATES to contact HomeStyle Energy mortgage lenders
- Home Energy Ratings System (HERS) report
- A Department of Energy (DOE) Home Energy Score Report
- A similar audit or report provided by a locally or state-certified independent home energy consultant or assessor
- What Home Upgrades are Eligible for the HomeStyle Energy Program?
- Air sealing (applying caulking and weather stripping)
- Air duct repairs, sealing or replacement
- Smart thermostats and controls
- Energy efficient windows and doors
- Low-flow faucets and showerheads
- Solar panels
- Water efficiency system
- Hot water heater
- Radon remediation
- New heating, ventilation or air conditioner (HVAC) unit
- New plumbing
- Irrigation system
- HomeStyle Energy Loan Requirements
- HomeStyle Energy Mortgage Program Loan-to-Value Ratio (LTV) and Down Payment Requirements
- HomeStyle Energy Mortgage Property Eligibility
- Mortgage Type and Program
- Program Costs and Fees
- Combining the HomeStyle Energy Program with Other Fannie Mae Programs
- Related FREEandCLEAR Resources
The HomeStyle Energy Mortgage Program enables borrowers to include the cost of energy-efficient upgrades in their loan amount when they buy a home or refinance their existing mortgage. The overall goal of the program is to help borrowers improve the energy efficiency of their homes which can reduce their monthly utility costs and make owning a home more affordable. According to the program guidelines, borrowers can use up to 15% of the post-upgrade, as completed property value for energy-efficient renovations and repairs. For example, for a home valued at $200,000 after upgrades, you can use $30,000 of your loan amount for energy-efficiency improvements ($200,000 (property value) * 15% = $30,000 (improvements)).
The main benefit of the HomeStyle Energy Mortgage Program is that it enables borrowers to finance the cost of significant energy-efficient home upgrades without requiring a separate loan, such as a second mortgage, home equity loan, PACE (Property Assessed Clean Energy) loan or personal loan. Obtaining a separate loan to pay for property renovations can be costly and time-consuming for borrowers. Additionally, the program uses the post-upgrade appraised value of the home to determine your mortgage amount which means borrowers can qualify for a larger loan amount. With most standard mortgage programs, lenders typically only lend against the pre-upgrade value of a property which limits your loan amount.
Select a HomeStyle Energy Mortgage Lender
The HomeStyle Energy Mortgage Program is offered by Fannie Mae through participating lenders. From the borrower’s standpoint, the involvement of Fannie Mae is less important because you interact with the lender, not Fannie Mae, when you apply for a HomeStyle Energy mortgage. You can apply for the program with any Fannie Mae-approved lender such as a bank, mortgage broker, mortgage bank or credit union. Unlike other Fannie Mae programs, lenders are not required to obtain additional approval or certification to offer the program.
Prepare Energy Report if Necessary
When you apply for a HomeStyle Energy mortgage you work with your lender to determine the value of the energy-efficient upgrades you want to implement. This process involves itemizing and analyzing the upgrades to determine their cost as well as potential benefits such as lowering your utility bills. Lenders want to ensure that you realize a financial return on the investment you make in upgrading your property.
If the amount of your energy-efficient improvements is less than $3,500, the lender uses cost estimates and other information provided by the borrower as documentation for the upgrades. Additionally, an energy report is not required for certain energy-efficient upgrades including the installation of water efficiency devices and solar panels or radon remediation. An energy report is also not required if the HomeStyle Energy loan refinances debt, such as a PACE or home equity loan, that was used to purchase or install energy-efficient improvements. If the anticipated amount of the improvements is more than $3,500 and falls outside of the energy-efficient upgrade categories outlined above, the borrower is required to obtain an energy report from a certified auditor to document the upgrades. The HomeStyle Energy Program accepts three types of energy reports:
Borrowers can visit the HERS web site or the DOE Home Energy Score web site to find a certified assessor to prepare the energy report. An energy report typically costs between $400 and $800 and the cost of the report can be included in the mortgage amount.
Appraisal Report Determines the As-Completed Property Value
After determining the scope and cost of the upgrades, the lender provides this information, including the energy report, if applicable, to the appraiser. The appraiser then produces an appraisal report that determines the as completed property value, reflecting the energy-efficient upgrades the borrower intends to make.
The lender uses the post-upgrade property value provided by the appraisal report to finalize the mortgage application including the loan amount and loan-to-value (LTV) ratio. Using the as-completed property value to determine the LTV ratio enables borrowers to qualify for a higher mortgage amount. The lender also uses the appraisal report to confirm the amount of the loan that can be set-aside for the upgrades (up to 15% of the as completed appraised property value). Assuming the borrower meets the lender’s qualification requirements including credit score and debt-to-income ratio guidelines and there are no issues with the title report, the mortgage eventually closes.
Mortgage Closes and Funds Are Released to Escrow Account
When the mortgage closes the money that is used to buy the home or refinance an existing mortgage or debt is disbursed to the appropriate parties and the proceeds designated for the energy-efficient upgrades are placed in an escrow account. For example, if you are buying a home for $170,000 and making $30,000 in improvements (so the property has an as completed appraised value of $200,000), $30,000 of the loan amount is placed into an escrow account to pay for upgrades after the mortgage closes and you take ownership of the home.
Borrowers have 180 days after the mortgage closes to use the funds in the escrow account to pay for the improvements. Any leftover funds in the escrow account after 180 days are used to pay down your principal loan balance. Borrowers cannot take any cash proceeds from the escrow account.
Borrowers are required to provide their lender with receipts, work orders and other relevant documentation to verify the upgrades as they are completed. The lender monitors the work and administers the escrow account to make sure the borrower has the required funds, when necessary, to complete the the upgrades.
Energy-Efficient Upgrade Project Completed
At the end of the HomeStyle Energy Mortgage process, the energy-efficient upgrades should be completed, the escrow account should be totally depleted and the lender documentation are finalized. The appraiser is also required to update his or her report to verify the completion of the upgrades.
The program permits a wide range of energy and water-efficient home upgrades. The upgrades generally fall into these categories: basic weatherization projects that fall below the $3,500 threshold and larger projects that exceed the $3,500 limit. You can also use a HomeStyle Energy Mortgage program to make your home more resilient to natural disasters such as storms, earthquakes and floods or to repair damage caused by these types of disasters. Non-energy efficient upgrades such as adding a pool or bathroom are not eligible for the program. Borrowers should work with their lender and energy assessor, if applicable, to determine the most cost-effective upgrades to implement.
Basic weather proofing and weatherization
Higher cost items that do not require an energy report
Higher cost items that likely require an energy report
The minimum credit score to qualify for the HomeStyle Energy Mortgage Program is usually 680. The required credit score varies depending on loan-to-value (LTV) ratio, borrower debt-to-income ratio, mortgage program and property type. We recommend that you review your credit score six months to a year before you start the mortgage process to address potential issues.
Borrower Debt-to-Income Ratio
According to program guidelines, lenders apply a maximum debt-to-income ratio of 38% - 45%, depending on the type of energy upgrades, LTV ratio as well as the borrower’s credit score and financial reserves. The program permits higher debt-to-income ratios because borrowers save money on their monthly utility bills by making the energy efficient improvements. Applying a higher debt-to-income ratio means that borrowers can qualify for a larger mortgage amount.
First-Time and Repeat Home Buyers
The program is available to both first-time and repeat home buyers.
Loan-to-Value (LTV) Ratio
The maximum loan-to-value (LTV) ratio for the HomeStyle Energy Mortgage Program is 97%. The LTV ratio is based on the as-completed value of the property after the energy-efficient upgrades rather than the current property value, which is a significant advantage for borrowers. Using the higher as-completed property value enables borrowers to qualify for a larger mortgage and eliminates the need to obtain additional financing to pay for the upgrades. Please note that lenders typically charge higher interest rates for mortgages with higher LTV ratios.
Borrowers can use the program to purchase a property with a down payment as low as 3%. For example, if the borrower uses a fixed rate mortgage to purchase a single unit property for $150,000 and wants to make $20,000 in energy-efficient upgrades (for an as-completed property value of $170,000), the borrower would be required to make a down payment equal to 3% of the as-completed property value, or $5,100, and obtain a HomeStyle Energy Mortgage for $164,900 to pay for the remaining cost of the property and energy-efficient upgrades. Please note that if you make a down payment of less than 20% lenders typically require that you pay private mortgage insurance (PMI) which is an extra ongoing monthly cost on top of your mortgage payment.
The HomeStyle Energy Program only applies to conforming loan amounts ($453,100 or below for a single unit property in most counties) which limits the size of mortgage you can obtain.
One-to-four unit owner-occupied and non-owner occupied residences and second or vacation homes are eligible for the program. Manufactured homes are eligible for the program as long as the energy-efficienct upgrades do not involve structural changes to the home. New construction homes are not eligible for the program.
The HomeStyle Energy Program applies to both home purchases and refinancings. For refinancings, the program can be used to pay for new upgrades or borrowers can do a limited cash-out refinance to pay-off debt, a home equity loan or a PACE loan that was used to finance already completed energy-efficient property improvements. Borrowers that use the program to pay-off existing debt must provide receipts, invoices or other documentation that verify that the debt was incurred to pay for energy-efficient upgrades. Borrowers do not need to provide receipts for prior upgrades if the loan proceeds are used to pay off a PACE loan. Borrowers cannot use the program to pay for prior upgrades that were paid for in cash.
Fixed rate mortgages and adjustable rate mortgages (ARMs) are eligible for the program while interest only mortgages are not permitted.
HomeStyle Energy Mortgage Rates
The interest rate on a HomeStyle Energy Loan may be slightly higher than the rate for a regular mortgage and also higher than the rate for an FHA or VA Energy Efficient Mortgage (EEM). The mortgage rate is higher because of the additional work and risk associated with energy efficient mortgages. Borrowers should compare multiple lenders to find the mortgage with the lowest rate and fees.
In addition to standard mortgage closing costs, program applicants are required to pay extras fee for the energy report, if necessary, as as well as for any engineering and consulting work associated with the energy-efficient upgrades, although many of these costs can be included in the loan amount. Borrowers are also required to pay extra lender, property inspection, appraisal and title fees due to the additional work involved with a HomeStyle Energy Mortgage.
The HomeStyle Energy Program can be combined with any other Fannie Mae program including the HomeReady Mortgage Program and the HomeStyle Renovation Program. The HomeReady Mortgage Program enables borrowers to buy a home with a low down payment and allows borrowers to include non-traditional sources of income to qualify for the mortgage. Borrowers can also combine the program with a down payment assistance grant or other program to help them afford a home and pay for energy-efficient upgrades.
The HomeStyle Renovation Mortgage Program enables borrowers to include funds for significant home repairs or renovations in their loan amount. The difference between the HomeStyle Renovation Program and the HomeStyle Energy Program is that the HomeStyle Renovation Program permits a much larger portion of loan proceeds (75% of the as completed appraised property value) to fund home improvements and the renovations are not limited to energy efficient upgrades. Borrowers can combine the HomeStyle Energy and HomeStyle Renovation programs to finance energy-efficient improvements that are part of a larger home renovation project.