Energy Efficiency Improvements
The cost of energy efficiency improvements can also be added to the loan.
When it comes to new purchase VA loans that require additional attention or further regulations, there is a list which includes VA Energy Efficient Mortgages, Adjustable Rate Mortgages and Graduated Payment Mortgages.
VA Energy Efficient Mortgages (EEMs) require additional attention because they have the potential to increase mortgage payments. Additional underwriting may be needed in some cases. VA EEMs are intended for “approved improvements” or upgrades–a borrower can use a VA EEM to help pay for energy efficient improvements to the home-but only those improvements permitted by the program.
In the case of VA Adjustable Rate Mortgages, additional care is needed with these loans because of the changing interest rate feature of the loan. The borrower must be able to afford not only the introductory rate, but also the amount of the mortgage payments after the rates change once the introductory period is over. According to the VA loan rulebook:
“An ARM loan offers more flexible interest rates based on negotiated initial fixed interest rates coupled with periodic adjustments to the interest rate over time. Hybrid ARMs have longer initial fixed rates of 3, 5, 7, or 10 years, while a “traditional” ARM allows for an annual adjustment after 1 year.” These adjustments can affect the borrower’s financial bottom line; the costs must be carefully examined.