What are
green loans?

Across the United States, a growing number of investors and property managers now look for ways to promote sustainability. Some individuals spearhead environmental projects to care for Mother Nature while others encourage the cause by reducing energy and water bills. The latter serves a dual purpose: it cares for the environment while significantly increasing net operating income (NOI).

The challenge for many home and property owners is how to obtain funds to make these changes. Fortunately, multiple financing options are available.


Evidence of an improvement in energy or water consumption (borrowers can pick either) is the top requirement for both GSEs. Both programs also do not have minimum spend requirement per unit and allow partial implementation. Borrowers have a year to complete all necessary improvements.

Available Green Financing Options

Freddie Mac’s Green Advantage suite rewards borrowers who have green-certified properties or are looking to improve their properties to reduce their energy consumption. Loan applicants may choose between Green Up and Green Up Plus.

According to the government-sponsored enterprise (GSE), borrowers who commit to reducing their water or energy consumption by at least 25 percent get more funding and better pricing for property enhancements.


Fannie Mae increased its savings thresholds from 20 to 25 percent. The enterprise also requires borrowers to submit specific forms (4099h) along with their green report. Their current Green Building report now includes additional water flow rate bag testing and site visit sampling.

Freddie Mac

Fannie Mae’s Green Financing, on the other hand, offers mortgage financing to cooperatives and apartment owners to fund water and energy efficiency property improvements. The GSE also serves as a multifamily market by integrating sustainability considerations into their asset management, underwriting, and securitization processes.

With Fannie Mae’s Green Financing, owners can invest in strategic water and energy saving improvements. These changes can improve their property’s bottom line by lowering utility costs and improving the property’s quality for tenants.

With the help of an experienced and knowledgeable environmental consultant, borrowers can benefit from these housing incentives if they meet these green programs’ guidelines.


Freddie Mac is stricter with their efficiency numbers, which they also raised from 15 percent to 24 percent. The organization also introduced a new Form 1106, which borrowers must submit with their Green report. 

Fannie Mae

Green Loan

As the name implies, Green Loan mortgages (also known as Energy Efficient Mortgage [EEM] programs) are special types of loans designed to save energy and money at the same time. These mortgages allow applicants to borrow money to fund energy efficient upgrades to their properties.

These loans provide an affordable way to make costly but eco-friendly improvements. The results are sustainable living spaces with significantly lower costs for cooling and heating.

Unlike home equity loans, Green Mortgages aren’t just the types of secondary mortgages. These are also primary mortgages that allow borrowers to make a single payment per month.

How does
it work?

Energy efficient residential and commercial properties use less energy, which makes them more affordable. Owners of these properties spend less per month on water and energy bills. They can use these savings to pay for larger mortgages that can fund sustainable upgrades for the property.

Multifamily property owners who wish to add energy efficient features must first receive approval for regular mortgages. Only then would they get a Green Mortgage to pay for energy efficient upgrades.

Individuals purchasing a new home with energy efficient features also benefit from EEMs. Lenders recognize that their utility bills will be lower, which will qualify them for greater mortgage amounts.

Numerous government agencies support Green Mortgages: The Federal Housing Administration, the Department of Veterans Affairs (VA), and Fannie Mae/Freddie Mac (conventional secondary mortgage markets). EEM lenders include mortgage companies, banks, and credit unions.

Different Types of
Green Mortgage Loans

Multifamily property owners and investors can qualify for one of the following mortgages:

Fannie Mae and Freddie Mac are the go-to names for this type of loan. Conventional EEMs lend borrowers up to 15 percent of the property’s appraised value for improvements.

Only present military personnel and qualified veterans can use this EEM to purchase or refinance a home. This loan lends $3,000 based on the documented costs of the property improvements or an additional $6,000 for energy efficient upgrades if the projected savings increase mortgage payments.

This program allows borrowers to take advantage of the benefits from FHA financing. They can also borrow up to 5 percent of whichever of the following is the least: a) 115 percent of the Freddie Mac limit in their area; b) the borrower’s property’s appraised value; or c) 115 percent of median area price of the property.

How to Qualify for an EEM

To get a Green Mortgage, borrowers must first determine the improvements for their property. EEM providers recommend following the official suggestions listed in the Home Energy Rating System (HERS) report. Trained Energy Raters will visit the property to evaluate its energy efficiency and give it an overall rating. Their report will include the following details:

  • The cost estimate of the price, savings, and life of energy- and water-saving improvements
  • Recommendations for property upgrades
  • An estimate of the property’s ratings after the upgrades

After receiving the HERS inspection, borrowers can figure out the amount they qualify for, as well as the upgrades they wish to invest in.

Do you still have questions about Green Mortgages? 

Learn more about EEMs and how our services can help by talking to us today.