T4 VA High Confidence Guidance

VA Circular 26-25-7: The Effect of Certain Home Energy Efficiency Ratings on VA Underwriting Decisions

Clarification of existing statutory authority to consider property energy efficiency in VA loan underwriting decisions

LOW

Impact Level

Top: Compliance (2)

Advisory Assessment

Impact. VA lenders can now formally use qualifying energy efficiency reports as compensating factors in underwriting decisions, treating projected utility savings as additional income when determining borrower capacity. This creates new documentation requirements for loan files and approval justifications when lenders elect to use this optional underwriting tool.

Risk. Examination focus will center on proper documentation and file retention when energy efficiency factors are applied, particularly whether lenders are maintaining qualifying reports and adequately justifying approval decisions in VA Form 26-6393 remarks. Operations teams may struggle with determining report validity and age thresholds without clear vendor management protocols.

Recommended Action. Update your VA loan underwriting policies to address energy efficiency consideration criteria and train underwriters on documentation standards for the VA Form 26-6393 remarks section. Establish vendor due diligence procedures for energy efficiency report providers if you plan to utilize this compensating factor.

Watch. Monitor VA examination guidance and industry implementation practices as lenders begin applying these energy efficiency considerations, particularly any emerging standards for report validation and documentation sufficiency that could inform your own procedures.

Classification

Regulatory Program: VA Home Loan Program
Doc Type: Guidance
Effective Date: 2025-09-22
Days to Action: -297
Comment Deadline: —
Published: 2025-09-22

Urgency Basis

Effective date of September 22, 2025 is over 180 days past today's date (May 15, 2026), and document states this is clarification of existing policy, not new requirements

Operational Context

Affected Functions

Compliance Operations

Institution Applicability

All

Impact by Category

Compliance

Operational

Data Governance

Model Risk

Reporting & Disclosure

Capital & Liquidity

Consumer Protection

Third-Party Risk

Key Requirements

- Consider energy efficiency cost savings as compensating factor when supported by qualifying reports - Document loan approval justification in VA Form 26-6393 remarks section when using energy savings - Retain copy of energy efficiency report in loan file - Use only confirmed reports based on actual property testing - Limit consideration to families not exceeding bedrooms plus one occupant - Consider age of energy efficiency reports, with 12+ month old reports potentially inaccurate

Scoring Rationale

This is clarifying guidance on existing statutory authority rather than new regulatory requirements. The operational impact is limited to VA lenders who choose to utilize energy efficiency reports as compensating factors. While it creates new documentation requirements, the overall burden is minimal as this is an optional underwriting tool. The effective date has already passed, making this informational for current compliance state.

Scored: 2026-05-16T00:35:22.008Z Model: claude-sonnet-4-20250514 Confidence: High Aggregate Score: 1.2

AI Analysis Disclosure — This record, including its scores, impact assessments, and Advisory Assessment (impact, risk, and recommended actions), was generated by an AI model and may contain errors or omissions. The Advisory Assessment is a starting point for analysis, not a substitute for professional judgment. Effective dates, applicability determinations, impact assessments, and any recommended actions should be independently verified against primary regulatory source documents and reviewed by qualified compliance or legal personnel before taking compliance action. This output does not constitute legal or compliance advice.