What Is a USDA Energy Efficient Mortgage?
A USDA loan may help if you want to make your home more energy efficient or buy a house that needs energy upgrades.
While the United States Department of Agriculture (USDA) no longer has an official loan program for funding energy improvements, it does have a few financing options that can assist rural homebuyers in covering these costs.
Learn more about your USDA energy-efficient mortgage options below.
Even though there’s no standalone USDA “energy loan,” several USDA loan options allow you to finance energy-efficient home improvements. These include USDA Guaranteed Loans as well as USDA Repair Loans and Grants.
USDA Guaranteed loans are the most commonly used USDA loan program. Low- to moderate-income earners, with incomes below 115% of the area median income, can utilize these no-down-payment loans in eligible rural and suburban areas of the country, as defined by the USDA. Homebuyers can use these loans to purchase a home as is or to purchase a home while funding repairs and renovations simultaneously.
With the latter approach, you could finance the purchase price of a home and the costs of your planned energy updates and repairs, rolling them all into one loan and one monthly payment. Sometimes these are called USDA renovation loans. A renovation loan can save you time and money because you combine the purchase price, upgrades, and other renovations into a single fixed-rate mortgage.
You can roll the following energy-efficient upgrades into your home purchase:
However, you can’t use the funds for luxury features, like installing a swimming pool, hot tub, or outdoor fireplace.
To obtain a USDA loan, you must buy a home in a USDA-eligible area and meet the USDA’s income threshold set for your county.
USDA loans have no down payment requirements, but you generally must fall below a 41% debt-to-income ratio (DTI) to qualify. This means your monthly debts take up no more than 41% of your monthly income.
Typically, you also need at least a 620 credit score to qualify for a USDA loan, though this can vary by lender.
A USDA repair loan or grant may be an option if you already own a home. These loans are reserved for homeowners typically below 50% of the area median income and allow them to repair, improve, or modernize their existing homes. Again, the home you repair must be located in an eligible part of the country.
Borrowing money to fund home improvements often comes with interest, but with the USDA’s low rates, and by making the right energy-efficient updates, it can be well worth the investment in the long run.
Energy-efficient home upgrades can reduce utility costs and lower household bills and expenses, freeing up cash flow.
They also may qualify you for certain rebates from local, state, and federal governments, from utility providers, and even on your annual tax returns. Energy efficiency can also increase your home’s value, allowing you to potentially sell your property for more when the time comes.
Finally, a more energy-efficient home can provide a more comfortable living experience and may make your home more marketable to future buyers or tenants.
The first step in the USDA loan process is to find a home in a USDA-eligible area. Next, connect with a USDA lender; not all mortgage companies offer these loans, particularly renovation loans, which can finance a purchase and energy-efficient upgrades simultaneously.
From there, you need to:
Be sure to stay in contact with your loan officer throughout the entire process. They may need additional documentation or have questions, and any delays could prolong your closing date.
Only homes in certain rural and suburban parts of the U.S. are eligible for USDA mortgage financing. You can see USDAloans.com’s online eligibility map to help you identify the areas eligible for financing.
The USDA doesn’t have a specific energy-efficient mortgage program, but it offers several options if you want to finance energy updates in your home. Qualified borrowers can use the USDA’s Guaranteed Loan program to buy properties and finance certain repairs and renovations simultaneously. There are also USDA home repair grants and loans for existing homeowners. Talk to a USDA-approved mortgage lender for more guidance.
Adding energy-efficient home upgrades like double-paned windows, replacing insulation, adding solar panels, or investing in Energy Star appliances can all make your home more energy efficient. Consider getting an energy audit to determine which areas of your property you can improve.
USDA loans offer a valuable path to homeownership and energy efficiency for buyers in eligible rural areas. Whether you're purchasing a home or upgrading your current one, these programs can help you finance energy-saving improvements with little to no upfront cost.
By making smart, efficient upgrades, you can lower your utility bills, improve comfort, and boost long-term home value, all while benefiting from affordable government-backed financing. To get started, explore your USDA loan options and connect with a qualified lender today!
