What You Should Know BEFORE You Consider A Solar System 

Tuesday September 4, 2018 by The Mettle Group

What You Should Know BEFORE You Consider A Solar System

The idea of being off the grid or at least reducing our energy footprint is exciting to most homeowners.  It’s easy to get caught up in the exciting future vision of every home and car being energy independent and completely solar powered.

Watching Elon Musk at the Tesla 3 launch event, it was inspiring to hear him explain that Tesla exists “to accelerate the world’s transition to sustainable energy and transportation”.  With all of the energy and excitement behind the solar and electric car movement, it’s easy to overlook some of the risks that today’s solar units pose for homeowner and potential buyers.

The goal of this short article is to make you more aware of the risks and able to make better decisions if you are considering solar for your home.

After researching numerous articles concerning solar panels for homes, it quickly became apparent that under certain circumstances solar panels may not be the highest or best choice.  The most common of these reasons are:

  • Your roof is not large enough or is not compatible with mounting solar panels
  • You already have low energy bills
  • IF YOU PLAN TO MOVE SOON
  • If your roof is in shade a large part of the day
  • If you are anticipating roof restoration or home expansion in the near future

A solar power system does not pay for itself (as a general rule of thumb) in less than seven years.  So if you are planning on selling or moving within that timeframe, it usually does not make financial sense to install solar panels and it may be an unworthy investment.

In my experience with the transactions in our North Salt Lake office involving solar panels, the panels have not improved the value of the home enough to break even for the up-front investment (particularly if the panels are being financed).   And even in some circumstances squelched a successful sale because of the buy-out costs the seller will incur at closing.

Similarly to pools, and outbuildings, appraisers only give a limited value to solar panels and it frequently does not amount to what was originally invested in the panels.

Another factor in the decision making process of installing solar is the condition of the roof.  Even though the solar panel company is saying the roof is in good condition, it is highly recommended to get an independent verification of the life of the roof.  Solar panels may outlive the life of the roof and thereby cause additional costs for the removal and remounting when a roof is replaced.

If you are considering purchasing solar panels, be certain to check with more than one company. Solar is one of the fastest growing markets and there are plenty of companies that are using aggressive sales tactics.  A report issued by the U.S. Department of Energy’s National Renewable Energy Laboratory recommends that consumers compare as many solar options as possible to avoid paying inflated prices or getting into contracts with high fees and/or interest rates.

When it comes to financing a home with an existing solar system, there is an extensive checklist that any lender must review and approve before someone can buy your home or before you will be able to refinance.

You’ve likely heard of Fannie Mae and Freddie Mac, they are the two government sponsored enterprises that provide the financing for the majority of homes in the United States.  If you hear someone talk about a conforming loan, they are nearly always underwritten to Fannie or Freddie’s guidelines, so it’s important to understand what these two entities require before they will finance a home with a solar system.

Here’s what is required before a conventional loan can be made on a home with a solar unit:

Underwriting will require a copy of the solar lease agreement as well as the power purchase agreement if the homeowner has contracted to sell some of their energy to the local power company.  The following items must be verified in the lease agreement and title report or the loan is ineligible for conventional financing:

  1. Any damage that results from installation, malfunction, defect, or the removal of the solar panels is the responsibility of the owner of the equipment (which is typically the solar leasing company not the homeowner).
  2. The solar leasing company must agree to NOT be listed as insured by the property homeowner’s insurance policy.
  3. In the event of foreclosure, the lender has the discretion to terminate the lease/agreement and require the solar leasing company remove the equipment.
  4. In the event of foreclosure, the lender has the discretion to either take over the lease at the existing terms, or enter into a new agreement with the leasing company under terms no less favorable than the prior owner.
  5. The lease payment must be considered in the homebuyer’s debt to income ratios, this means it will be harder to qualify for the home purchase with a solar system lease in place.
  6. The appraiser must confirm the property has access to an alternate source of electric power that meets the community standards.
  7. The solar lease must allow the new mortgage lender to have first lien position, effectively subordinating their lien priority to the new mortgage lender.

As you can see, if you were unaware of these requirements, you might very well have installed a solar unit on your home and effectively made your home ineligible for financing for a new potential buyer.

Likewise, if you entered into a contract to purchase a home without knowing these requirements, you could put yourself into a position where your earnest money could be lost if you did not validate these requirements prior to your financing deadline in the real estate purchase agreement.

If you have any additional questions, feel free to reach out to either Sharon Spratley with Berkshire Hathaway Home Services Utah, or Josh Mettle with Fairway Independent Mortgage Corporation.

www.bhhsutah.com

www.fairwayut.com

 

Sharon Spratley is currently managing broker of the North Salt Lake office of Berkshire Hathaway HomeServices Utah Properties.  She has been a high producing Realtor since 1994 and served as the Salt Lake Board of Realtors President in 2006.

Josh Mettle NMLS #219996 is an industry leading author and mortgage lender.  You can get more great real estate and mortgage advice here or his by visiting his book site.  Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages.

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