Freddie Mac Guidelines: Energy Conservation Improvements

What Happened to Energy Conservation Improvements

Fannie Mae eliminated its energy conservation improvements program in May 2019. This program previously allowed borrowers to finance energy-efficient upgrades as part of their mortgage loan amount. The program let you add costs for items like solar panels, energy-efficient windows, or improved insulation directly to your home loan.

If you're researching this topic, you likely found references to the old program in outdated articles or mortgage websites. The program no longer exists in its original form.

Why Fannie Mae Made This Change

Fannie Mae consolidated its green financing options to streamline the process. Instead of multiple programs with different rules, they created GreenCHOICE Mortgages to handle energy-efficient home financing. This change simplified both lender operations and borrower options.

The old energy conservation improvements program had complex verification requirements. Lenders needed to document projected energy savings, verify contractor estimates, and ensure improvements met specific efficiency standards. The new approach reduces this administrative burden.

Current Green Financing Options

GreenCHOICE Mortgages replaced the energy conservation improvements program. These loans finance homes that meet specific energy efficiency standards or include qualifying green features. The program covers both purchase and refinance transactions.

Say you're buying a home with solar panels and Energy Star appliances. A GreenCHOICE Mortgage might offer benefits like reduced mortgage insurance or favorable pricing. The exact benefits depend on the home's efficiency rating and your lender's offerings.

The program requires homes to meet certification standards from organizations like ENERGY STAR, LEED, or similar programs. Your lender will need documentation proving the home's efficiency rating.

What This Means for Your Home Purchase

You cannot finance energy improvements through the old Fannie Mae program. If you want to add solar panels or upgrade insulation, you'll need separate financing or cash. Some options include personal loans, home equity lines of credit, or specialized green improvement loans.

Consider timing your improvements carefully. Installing energy-efficient features before you apply for your mortgage might qualify the home for GreenCHOICE benefits. This approach requires upfront cash but could result in better loan terms.

Some local utility companies and government programs offer rebates or financing for energy improvements. Research these options in your area before deciding how to fund upgrades.

Documentation Requirements for GreenCHOICE

GreenCHOICE Mortgages require specific documentation to verify a home's energy efficiency. You'll need certification from an approved rating system like ENERGY STAR, LEED Gold or Platinum, or similar programs. The certification must be current and cover the specific property you're financing.

Your lender will also require standard mortgage documentation. This includes income verification, asset statements, credit reports, and property appraisals. The appraisal should note any energy-efficient features that contribute to the home's value.

Some lenders require additional documentation for green features. This might include manufacturer warranties for solar panels, utility bills showing energy usage, or contractor certifications for recent improvements.

Common Misconceptions About Energy Financing

Many borrowers still believe they can add improvement costs to their mortgage under the old program. This confusion stems from outdated information online and mortgage professionals who haven't updated their knowledge. The program ended over five years ago.

Some people confuse Fannie Mae's discontinued program with FHA's Energy Efficient Mortgage program, which still exists. FHA allows borrowers to finance certain energy improvements, but the rules and limits differ significantly from the old Fannie Mae program.

Veterans sometimes mix up these programs with VA's Energy Efficient Mortgage option. Each government-sponsored program has different rules, eligible improvements, and documentation requirements.

Impact on Existing Loans

If you have an existing loan that included energy conservation improvements under the old program, your loan remains valid. The program's elimination doesn't affect loans already closed and funded. Your servicer will continue managing your loan under the original terms.

These existing loans may have unique features that newer loans don't offer. For example, your loan amount might include costs for improvements that wouldn't qualify under current programs. This grandfathering protects borrowers who used the program before its elimination.

Planning Your Energy Improvements

Research current financing options before starting energy projects. Many manufacturers offer financing for solar installations, HVAC systems, and other major improvements. These programs often provide competitive rates and terms designed specifically for energy upgrades.

Consider the timing of improvements relative to your home purchase or refinance. Installing qualifying features before applying for a GreenCHOICE Mortgage might provide better loan terms than financing improvements separately after closing.

Calculate the total cost of different financing approaches. Sometimes paying cash for improvements and getting better mortgage terms costs less than separate improvement financing. Run the numbers for your specific situation.

References

For the official guidelines, see 4405.1: Energy conservation improvements in the Fannie Mae Selling Guide.