Previous posts have shown that 3 out of 4 solar home sales are financed with either a conventional, FHA (Federal Housing Administration), or VA (Dept of Veteran Affairs) mortgage in the Phoenix area. While the majority of the qualifying guidelines for a mortgage focus on the buyer, solar can play a factor into a solar home buyer’s ability to purchase a solar home in Phoenix.
Conventional Loans. Conventional loans refer to everyday mortgage loans that are underwritten by guidelines published by Fannie Mae or Freddie Mac, secondary mortgage lenders that securitize mortgages on the secondary market. Conventional loans range from as little as 5 percent down and can be 15 or 30 year loans. The maximum conventional loan as of the publishing of this article in Phoenix is $417,000.
Both Fannie and Freddie require appraisers to use the “Residential and Green Energy Efficient Addendum” for appraisals on homes that have solar panels, assuming that the solar system is not leased.
Fannie did release a statement that they will not fund on a home if the home owner purchased solar panels under the PACE program (Property Assessed Clean Energy). For Arizona homeowners, this does not apply since the PACE program is a California program.
Fannie and Freddie require long term leases to be included in the borrower’s credit ratios (i.e. debt-to-income ratio) if the remainder of the term of the lease exceeds 10 months. As of 2017, Fannie and Freddie are generally not requiring buyers to include lease payments as a part of their credit ratios.
FHA home loans, or mortgages insured by the Department of Housing and Urban Development (HUD), offer a low down payment option for home buyers without the strict adherence to guidelines that conventional loans require. FHA loans are often known for their common sense approach to credit guidelines and allowing the down payment to be gifted by family members or non-profit organizations. The maximum FHA loan for the Phoenix area is $271,050.
The main FHA mortgage guidelines that affect solar comes from FHA guidebook 4150.1 Rev 1, section 12-14 that states allows for mortgage amounts that exceed 20 percent of the maximum allowable FHA home loan for the area if the increase is used to pay for the installation of solar owned system on a home.
FHA does have specific loans geared towards energy efficiency, including solar electric systems on a home. With an FHA Energy Efficient Mortgage (EEM), a home buyer can finance up to $10,000 in energy efficiency improvements into a home with as little as a 3.5 percent down payment.
FHA also offers Title I loans to home owners with little to no equity in their property to finance the cost of energy efficiency improvements. While this is not generally used for purchase situations, Phoenix home owners looking for solar may be able to qualify to purchase a solar system for their home instead of leasing a solar electric array.
FHA does not require long term leases to be calculated into a borrower’s qualifying ratio (i.e. debt-to-income ratio) if the remainder of the term of the lease exceeds 10 months.
VA home loans are guaranteed home mortgages for qualifying military veterans that require no money down. By far, VA home loans are one of the best types of loans in today’s marketplace. The maximum VA home loan with $0 down is $417,000 in the Phoenix area.
VA Pamphlet 26-7 (more like a book in my opinion) outlines the VA criteria for appraisal and qualifying issues with solar electric systems. Appraisal guidelines for valuing solar systems are under Chapter 11, section 12. Like other mortgage products, a solar system will only add value to a home if it is a fixture of the property and not leased property.
VA does have an energy efficient mortgage similar to FHA but most lenders in the Phoenix area do not offer this product.
VA does not require long term leases to be calculated into a borrower’s qualifying ratios (including both the debt-to-income ratio and residual income ratio) if the remainder of the term of the lease exceeds 10 months.