Funding of $323.3 million over four years is tagged for the programme to fit houses built before 2000 with insulation and clean heating under a programme the Government designed with the Green Party.
About 180,000 homeowners will be eligible for the grants from July. Community Service Card holders will be able to get grants as high as $3000.
The programme will be delivered by the Energy Efficiency and Conservation Authority and included its $79.6m funding, previously used in grants targeted at people on lower incomes.
"This will be a significant stimulus to the building industry and will have positive environmental and health benefits," Finance Minister Bill English told reporters at the budget lock up.
Grants of a third, capped at $1300, of the cost of home insulation were being offered.
Homeowners will be able to meet the remainder of the cost through loans provided by electricity companies, councils and banks, which have indicated they are interested in backing the scheme.
Money can be paid through power bills, council rates or mortgages. Interest will be charged.
A further $500 will be available for sufficiently insulated homes to go towards buying clean heating devices, which include approved log burners, pellet burners, heat pumps or flued gas heaters.
Community Services Card holders can get $1800 for insulation and a further $1200 for heating.
Landlords of card-holding tenants will be entitled to $1800 for insulation and $500 for heating.
Energy and Resources Minister Gerry Brownlee said the New Zealand Insulation Fund would generate jobs for people in the industry and reduce health problems.
"It's designed to reduce health risks from living in cold, damp homes and provide energy efficiency gains," he said.
Green MP Jeanette Fitzsimons said the country would recover its investment four-fold.
At the moment about 19,000 homes are insulated each year. This was expected to increase to 27,500 in 2009-10; 40,500 in 2010-11, then 52,000 and 60,500 in the next two years.
