The Impact of Solar Panels on Your Mortgage
There’s no question that solar power is more popular than ever before. More homeowners have installed solar panels on their homes today, including buying and installing their own home solar panel kits. But when it comes to solar panels, mortgage questions may arise.
Installing solar panels on your home can involve some complicated personal finance questions. In addition to installation costs and monthly payments on either financing solar panels or a lease agreement, solar panels for homes can affect mortgages for both buyers and sellers. In this article, we’ll look at the different ways solar panels can impact your mortgage situation.
How Do Solar Panels Impact Home Value?
When a homeowner installs solar panels on their home, it may or may not impact the value of their home. This depends on a number of factors, stemming from both the home itself and the comparable properties surrounding it.
Owning vs. Leasing
The first question is whether you’re leasing your solar equipment or if you own it outright. If you’re leasing your solar panels, they aren’t included in the valuation of your home. Because the homeowner does not own the panels, they are not considered to be a transferable asset and therefore are not counted by home assessors.
On the other hand, if you own your panels, the panels will be addressed during a home valuation—although the amount of that bump can vary based on several factors. In some cases, a solar panel installation can increase the value of your home by up to $15,000. In other cases, the value of comparable houses may dictate that the panels don’t provide appreciable value, and they may not raise the value of your home at all.
Regardless of the assessed value of your home, some buyers may still be attracted by the prospect of solar energy and may be willing to pay a premium. But in terms of the mortgage, it may or may not have an appreciable effect.
Buying a House with Solar Panels
When you’re buying a home with solar panels, it’s important to make sure you know all of the details about the equipment:
- Does the current homeowner own the panels?
- Are the panels leased from a solar company?
- Is there a lien on the solar equipment?
- What kind of financing was used to purchase the panels originally?
- Are there warranties applicable to the existing equipment?
Knowing the answers to these questions is not only vital to make sure that you know exactly what you’re paying for. In most cases, mortgage lenders will need to know this information to put together their offer—and in some cases, they may not be able to make an offer at all.
Does the Homeowner Own the Panels?
If the panels on a home are currently being leased, the buyer has to find out whether they can transfer the lease over to the new homeowner. Most times, this is not an issue. The new buyer will simply assume the lease, usually under the same terms. However, if that is not available, the company may remove the panels or renegotiate new terms for the new owner.
If the homeowner owns the panels outright, then there usually is no problem. While they can technically take the panels with them, that would need to be included in the buyer’s agreement. Most times, the panels remain with the home.
If the panels are currently being financed, however, things can get a bit more complicated. When a homeowner purchases solar equipment using a loan, the solar company will put a lien on the house. Most mortgage lenders will not finance a house with an existing lien. This means that the solar company will need to agree to temporarily release the lien until after purchase, then restore it afterward.
For some loans used to purchase solar panels, mortgage lenders have little to no choice not to make an offer. This includes the popular PACE loans or property-assessed clean energy financing.
Like other solar loans, a lien is placed on the property. State and local agencies back these loans to encourage renewable energy improvements. However, PACE loans typically take precedence over other loans, including mortgages, making that home a much less secure form of collateral.
Other Considerations
Several other factors need to be considered when buying a home with solar panels. One simple question is whether there is an existing warranty for the equipment. Solar panels are generally very durable and should last for many years, but a warranty is an important part of protecting that investment.
The home also needs a second energy source other than solar power. Mortgage lenders like Fannie Mae restrict homes from relying on solar power alone since a drop in power could lead the home to be considered uninhabitable.
You’ll also need to consider how any solar panel payments may figure into your debt-to-income ratio. Large solar payments could lead to higher interest rates or to the denial of a mortgage offer. That’s why it’s important to consider the overall cost of solar power in the new home.
Selling a House with Solar Panels
While buying a house with solar panels can be complicated, there’s also more to consider when you’re selling your solar-equipped home. Again, many of the questions come down to whether you own or lease your solar equipment. As in most cases, the answer typically lies in making sure everyone involved understands the details.
When You Own Your Panels
Solar panels that are owned outright present the easiest situation. Because they’re considered an integral part of the home, they will usually add to the value of your home. While you can include language that allows you to take your solar panels to your new home, in most cases, homeowners choose to leave the panels and enjoy their increased sale price.
Solar panels currently being financed present a slightly more challenging situation. Whether you used specialized home loans like PACE or other programs or secured a personal loan to pay for your new solar equipment, any outstanding balance is your responsibility.
However, these loans are, in essence, a second mortgage, and in most cases, they require the balance to be paid off prior to the sale. Because the home is the collateral, transferring ownership of the home creates issues for securing these loans.
Most times, you can work with the homeowner to include that payoff amount in the sale price. While this means you’ll receive less from the overall sale of your home, you’ll also have satisfied the terms of your solar loan, making it a much simpler transaction.
When You Lease Your Panels
There are a wide variety of leasing programs available to help you install solar equipment on your home. The primary benefit of leasing solar equipment is that you typically save a significant amount of money on installation. The solar company retains ownership of the equipment, but you’ll reap the benefits of generating renewable energy and potentially saving on your monthly utility bills.
In return, you’ll pay the solar company a monthly fee for solar panel maintenance and operation. While you won’t enjoy the tax credits that other homeowners may be able to qualify for, you also won’t be responsible for repairs or other services on your solar equipment.
When it comes time to sell, you’ll need to reach an agreement with both the buyer and the leasing company. If the buyer is willing to take on the lease agreement as it stands, then the issue is actually relatively simple. The new owners will just transfer the lease and continue paying under the current terms.
If the buyer is unwilling or unable to continue the lease agreement, then you have a few options. Many leases have clauses that authorize the solar company to physically transfer your panels to your new home. In other cases, you and the buyer may be able to reach an agreement where you credit them for the cost of buying out the solar contract as part of the sale price of the house.
No matter what, you must settle the question of the lease agreement before the mortgage lender will finalize the deal. Your lender may be able to help broker the process in the interest of helping the sale go through. In most cases, simply asking the leasing company about your options will help you take care of the issue.
Making a Solar Panels Mortgage Work for You
Adding solar panels to your home is almost always a good investment. When leasing equipment, you can potentially save on your electricity bills while being a good environmental citizen. And buying solar panels outright can add thousands of dollars to the value of your home.
While panels can complicate buying and selling your home, the benefit of adding solar far outweighs these potential challenges. All home sales present potential sticking points. As long as all parties are fully aware of the details involved, you should have no problem at all.
