Veterans Benefits Administration Department of Veterans Affairs Washington, D.C. 20420

Circular 26-25-7 September 22, 2025

The Effect of Certain Home Energy Efficiency Ratings on VA Underwriting Decisions

1. Purpose. The purpose of this circular is to provide clarification on the use of a property’s energy efficiency rating during the VA home loan underwriting process. This is not a change to VA policy. This circular explains how lenders can utilize an energy efficiency report when underwriting a VA loan.

2. Background. The Joseph Maxwell Cleland and Robert Dole Memorial Veterans Benefits and Health Care Improvement Act of 2022 (the Act) allows lenders to take a property’s energy efficiency into consideration during the VA underwriting process.[^1] Specifically, the Act grants lenders flexibility when calculating the sufficiency of a Veteran’s residual income used to qualify for a VA home loan based on the subject property’s Residential Energy Service Network’s (RESNET) Home Energy Rating System (HERS) score, or other report approved by the Secretary of Veterans Affairs.[^2]

3. Underwriting Consideration. If an energy efficiency report of a subject property indicates potential utility expense savings to the borrower, the lender may consider the cost savings as a compensating factor[^3] for loan approval as outlined in VA Lenders Handbook Chapter 4 Topic 10 Section d. In such cases, the lender will notate, in the “Remarks” section, on VA Form 26-6393, Loan Analysis, the loan approval justification, including how the utility savings was considered a compensating factor for the Veteran’s monthly residual income. Lenders are not to otherwise reduce or offset the maintenance and utilities expenses calculated per 38 CFR 36.4340(i). A copy of the energy efficiency report is to be retained in the loan file.

4. Eligible Home Energy Efficiency Reports. Lenders may use a RESNET HERS report, or any other home energy efficiency report that contains an estimate of the expected energy cost savings for the Veteran, based on detailed information about the home.[^4] It is strongly recommended that lenders consider the age of any home energy efficiency report when utilizing the underwriting consideration. Reports dated more than 12 months prior to loan closing may not contain an accurate reflection of the estimated energy cost savings to the homeowner. Any report utilized is expected to meet all of the following criteria:

a. The results of the report must have been based on actual testing of the property, referred to as a confirmed report by the industry.[^5]

b. The validity of the energy efficiency report is tied to the size of the family occupying the subject property. Lenders are not to utilize the underwriting consideration described in this circular as a compensating factor if the family size exceeds the number of bedrooms in the property plus one.

1. Effective Date. This circular is effective immediately.

2. Questions. Contact VA Loan Guaranty by calling 1-877-827-3702, with hours of operation between 8am to 6pm EST.

3. Paperwork Reduction Act. The information collection requirements contained in this document have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. § 3501-3520) and assigned OMB control numbers 2900-0523 and 2900-0515. In accordance with the Paperwork Reduction Act, VA may not conduct or sponsor, and a person is not required to respond to a collection of information unless the collection displays a currently valid OMB control number.

4. Rescission: This Circular is valid until rescinded.

[^1]: 38 U.S.C. § 3710(i)(1). [^2]: 38 U.S.C. § 3710(i)(2)(A)(ii). [^3]: 38 C.F.R. §§ 36.4340(c)(4)-(6). [^4]: 38 U.S.C. § 3710(i)(2)(B). [^5]: 38 U.S.C. § 3710(i)(2)(B)(i)