Why this matters this week
According to PG&E, smart thermostats alone can save the average California customer between $50 and $78 per year, and SMUD says you save 5 to 10 percent on cooling costs for every two degrees you raise the thermostat. Those are real numbers. But they are a Band-Aid on a bigger problem: a lot of Sacramento and Central Valley homes were built before modern efficiency standards. Old single-pane windows, undersized HVAC, brittle insulation, leaky ducts. You can adjust your thermostat to 78 all summer and still bleed money because the house itself is the leak.
That is where mortgage tools come in. There are four legitimate ways to finance energy improvements on a primary residence in California or New Jersey: an FHA 203k loan with an Energy Efficient Mortgage rider, a Fannie Mae HomeStyle Energy loan, a HELOC, or a closed-end second mortgage. Each one fits a different homeowner. Here is the side by side.
Option 1: FHA 203k with the Energy Efficient Mortgage (EEM) rider
The FHA 203k loan finances purchase or refinance plus rehab in a single first mortgage, based on the after-renovation appraised value. When you stack an Energy Efficient Mortgage rider, you can add up to roughly $4,000, or up to 5 percent of the property value, to fund qualifying energy improvements (HVAC, insulation, weatherstripping, dual-pane windows, solar). The EEM portion is not constrained by the standard FHA loan limit, which is why the rider exists.
Best for: homeowners buying a fixer or refinancing into a rehab loan who want to roll energy upgrades into one fixed-rate first mortgage. Down payment as low as 3.5 percent. Primary residence only.
Watch outs: requires a HUD-approved consultant on standard 203k. Improvements have to be cost-effective per a HERS-style energy audit. FHA mortgage insurance is typically lifetime.
Option 2: Fannie Mae HomeStyle Energy loan
HomeStyle Energy is the conventional cousin. It finances energy and water efficiency improvements as part of a purchase or refinance, up to 15 percent of the property's as-completed value. That is a much bigger budget than the FHA EEM rider, and the eligible scope is broader (solar PV, battery storage, EV charging, electric heat pump water heaters, whole-home re-insulation, even storm-shelter and resiliency improvements in some cases).
Best for: homeowners with stronger credit (typically 620+, better pricing at 700+), who want a single fixed-rate first mortgage and a larger energy budget than the FHA EEM allows. Works on primary residence, second home, and even investment properties in some configurations.
Watch outs: 5 percent minimum down on primary residence (15 to 25 percent on second home or investment). PMI required below 20 percent equity, but cancels at 78 percent LTV (unlike FHA).
Option 3: HELOC (Home Equity Line of Credit)
If you already have a low first-mortgage rate (anyone who closed between 2020 and 2022 sitting on a 2.75 to 3.75 percent rate), do NOT refinance to a 203k or HomeStyle. You will give up a generational rate to do it. Tap a HELOC instead. A HELOC is a second mortgage in the form of a credit line: you draw what you need, when you need it, and you only pay interest on the amount drawn.
Best for: rate-trapped homeowners who want to fund a new HVAC, attic insulation, dual-pane windows, or solar without touching the first mortgage. PRMG offers a 5-Day HELOC product designed for fast funding when the AC dies in the middle of a heat wave and you cannot wait 45 days for a traditional close.
Watch outs: HELOCs carry variable rates tied to the prime rate. Closing costs are usually low or zero. After the draw period (typically 10 years) you enter a repayment period (typically 10 to 20 years).
Option 4: Closed-End Second Mortgage
A closed-end second is like a HELOC's quieter sibling: same idea (a second lien behind your existing first), but instead of a credit line, you receive a single lump-sum disbursement at closing at a fixed rate, with a fixed monthly payment for the full term. No variable rate. No draw-and-repay flexibility. Just a clean, predictable second.
Best for: homeowners who know exactly how much the energy project will cost (say, a HVAC plus duct seal plus attic insulation package quoted at $24,000), want a fixed payment, and do not want variable-rate exposure. Strong fit for retirees on a fixed income who need predictability.
Watch outs: closing costs typically higher than a HELOC but lower than a cash-out refi. Term lengths are usually shorter (10 to 20 years) than a first mortgage. Rate is fixed at origination.
How to choose between the four
- You are buying a Sacramento fixer with old HVAC. FHA 203k + EEM rider often wins. One loan, low down, energy upgrades baked in.
- You are refinancing a primary residence with strong credit and want a bigger energy budget. Fannie Mae HomeStyle Energy. Up to 15 percent of property value toward solar, batteries, electrification.
- You closed your first mortgage in 2020 to 2022 and have a 3-handle rate. HELOC. Do not blow up the rate. Take a second behind it.
- You want a fixed monthly payment and you know the exact project cost. Closed-end second. Predictable, conservative, no surprises.
For New Jersey homeowners, the same four tools apply. NJ has older housing stock (especially in Bergen, Essex, Hudson, and Passaic counties) where energy upgrades pay back quickly. The Northeast does not get California heat waves, but it does get high winter heating bills, and the same four financing tools work for furnaces, heat pumps, attic insulation, and window replacements.
What energy upgrades typically deliver the best return
Per the U.S. Department of Energy, homeowners can save up to 10 percent a year on cooling costs just by adjusting their thermostat 7 to 10 degrees for about eight hours a day. But for the structural fixes that financing pays for, the rough hierarchy (highest payback first):
- Attic insulation and air sealing , usually the highest ROI per dollar spent, especially on older Sacramento and Central Valley homes.
- Duct sealing , leaky ducts can waste 20 to 30 percent of conditioned air before it reaches the room.
- HVAC replacement , if the existing unit is 15+ years old, a new high-SEER system can cut summer bills by a meaningful margin.
- Dual-pane (or low-E) windows , high upfront cost, modest payback, but real comfort difference in the hottest rooms.
- Solar plus battery , biggest absolute savings but longest payback and most complex financing.
Sacramento has the added benefit of SMUD-specific rebates and PG&E demand-response programs that pair with these upgrades. Stack the financing with the rebates and you can compress payback significantly.
The smart-thermostat starting point
If financing a big upgrade is not in the cards right now, do what PG&E and SMUD recommend: install a smart thermostat (potential annual savings of $50 to $78 per the utility), set it to 78 in summer, raise it 5 to 8 degrees when you leave for under four hours, turn it off completely if you will be gone all day. Close blinds and curtains during peak heat. Run heavy appliances after 8 p.m. when summer peak rates end. These are no-cost moves that buy you time to plan a bigger financed upgrade for fall.
Frequently Asked Questions
Common questions on this topic, answered by Ken Clark Jr., Certified Mortgage Advisor.
Can I finance a new HVAC system into a mortgage refinance?
Yes. Fannie Mae HomeStyle Energy and the FHA 203k with EEM rider both let you fold HVAC replacement into a single first mortgage based on after-improvement value. If your current rate is too low to refinance, a HELOC or closed-end second behind your existing first is usually the better play.
What is the difference between a HELOC and a closed-end second?
A HELOC is a variable-rate credit line you can draw from over time. A closed-end second is a single lump-sum loan with a fixed rate and a fixed monthly payment. HELOC equals flexibility; closed-end second equals predictability.
Can I finance solar panels with a HomeStyle Energy loan?
Yes. HomeStyle Energy covers solar PV systems, battery storage, EV charging infrastructure, and electric heat pump systems, up to 15 percent of the as-completed property value. The improvements must meet program guidelines and pass an energy report.
My current first-mortgage rate is 3.25 percent. Should I refinance to get energy upgrades?
Almost certainly not. Refinancing a 3.25 percent rate into today's market rate would more than offset any energy savings. Tap a HELOC or closed-end second behind your existing first instead.
How fast can a HELOC close in California?
PRMG offers a 5-Day HELOC product designed for fast funding scenarios, useful when the AC dies in the middle of a heat wave. Standard HELOC timelines run 14 to 30 days. Eligibility depends on credit, equity, income, and underwriter review.
Do these tools work for New Jersey homeowners too?
Yes. FHA 203k, HomeStyle Energy, HELOCs, and closed-end seconds all work in every state PRMG is licensed in (49 states including California and New Jersey, except New York). NJ homeowners commonly use them for furnace replacement, attic insulation, and window upgrades. Eligibility and program details depend on state and lender overlays.
Want to know which financing tool fits your house?
If your AC bill is killing you and you are wondering whether a refinance, a HELOC, or a closed-end second makes sense for your situation, connect with Ken Clark Jr. and the #ChampionsofLoans team at PRMG Mortgage. The right strategy starts with a conversation, not a guess.
Sources: Sacramento Bee, June 12, 2026; PG&E energy guidance; SMUD summer rate guidance; U.S. Department of Energy.
This article is for educational purposes only and is not a commitment to lend or guarantee of approval. Loan programs, rates, terms, and eligibility requirements are subject to change and depend on credit, income, property, occupancy, program guidelines, and other underwriting factors. Equal Housing Opportunity. PRMG Mortgage. NMLS 225375. Ken Clark Jr. NMLS #225375.
