From the period of January 1, 2014 to June 30, 2014, 3 out of 4 solar homes sold to a buyer that used conventional, FHA, or VA financing to purchase the home. Conventional, FHA (Federal Housing Administration, a sub agency of the Department of Housing and Urban Development), and VA (Department of Veteran Affairs) represent the most common means to finance the purchase of a home around the country.
Mortgage financing of a solar home takes on additional variables that can affect the sale of a solar home in the Phoenix area. Generally these variables fall into four categories:
- Buyer qualification
- Property qualification
- Appraisal and value
- Lender overlays
Buyer qualification variables refer to those specific guidelines for a mortgage that affect a buyer’s eligibility for a loan. Solar lease payments, for example, may be used as additional debt that a buyer has to factor in their qualifying ratios (such as their debt to income ratio) and can reduce the overall qualifying loan amount…forcing the buyer to put more money down on the purchase of the home or pay off additional debt to compensate for the additional lease payment.
Buyer Qualification. Most lenders require debt obligations of 11 months or more to be factored into the buyer’s qualifying ratios. If the Phoenix solar home has a solar lease that must be assumed, the lease payment may be calculated into their ratios (though there is not a consistent pattern among lenders these days) though the additional savings from utility costs will not be a qualifying factor. For home buyers purchasing a home that has a solar owned system on the roof, there are not any factors that would affect the buyer’s qualification for a mortgage.
Property Qualification. Currently there are not any guidelines that prohibit loans on homes with solar systems (either a solar lease or owned system). There is a rumor that HUD has proposed to limit financing on homes with solar financing but it is only a rumor and not substantiated by any fact.
Appraisal and Value. With the advent of Form 820.04, Residential Green and Energy Efficient Addendum, for home appraisals, home appraisers are able to better analyze and properly value solar improvements to a home. While monthly solar leases do not add value to a home, a solar owned system on a property could potentially add thousands of additional value to a home, besides monthly savings to its utility bills. Though the form has been out for several years, many real estate agents fail to provide real estate appraisers with adequate information for the solar system on their listing and can result in the loss of thousands of dollars in value that would help their seller.
Lender Overlays. Lender overlays refer to additional guidelines and rules that specific mortgage lenders place upon their loans, whether it is a conventional, FHA, or VA home loan. As of right now, there are not any notable overlays affecting the Phoenix solar home market.