Fha And Fannie Mae Agree A Solar Panel System Adds Value Your Home If You Own The System

One question that EnergySage receives regularly from our customers is: "Will solar panels increase the value of my property?" It is clear that the answer is already a resounding 'yes', and the evidence only continues to mount. We have compiled a list of studies that highlight this point, and recently wrote about Lawrence Berkeley Laboratory's recent study showing that solar panels increase home values significantly across the US. These studies mainly look at cases where the homeowner is also the owner of the solar panel system.

We know for certain that owning your solar system will save you more money on your electricity bills in the long run than installing your system under a solar lease or power purchase agreement (PPA). This is the primary reason that homes with solar panels sell for more: they offer a definite financial benefit to the future owner. What has been less clear is the how much (if any) value is added to your home if you've financed your system with a solar lease/PPA. "Will a leased solar panel system add value to my home?" is another question we receive on a regular basis. Two recent documents which EnergySage has reviewed shed further light on the matter.

KEY TAKEAWAYS

* If you own a home with a solar system, the FHA requires (to your benefit) that its value be assessed and added to the total appraisal value of your home when you want to sell it. However, if you do not own your panels, whatever value that they may add cannot be included for an FHA assessment

* Like the FHA, Fannie Mae has indicated that the value of a solar energy system may be included in an assessment of your home - but only if you (the homeowner) are also the owner of the system. If you lease your solar energy system, on the other hand, the system's value (if any) may not be incorporated into the assessment, and there are a number of additional requirements that must be met before Fannie Mae will approve a mortgage for a potential buyer.

* Will a solar system add value to your home if you finance it with a solar lease or power purchase agreement (PPA)? The FHA and Fannie Mae have little to say about whether financed systems are an asset or a liability. The picture should become clearer as more solar homes are sold and more data becomes available.

THE FHA SAYS THAT SOLAR SHOULD BE COUNTED TOWARDS THE VALUE OF YOUR HOME. BUT WHAT IF YOU DON'T OWN YOUR SOLAR PANEL SYSTEM?

The first document we looked at is from the FHA, the government body that insures federally-backed mortgages. The FHA was founded during the Great Depression in order to make the dream of home ownership a reality for a greater portion of the American populace. The FHA backs about one out of five single-family home mortgages in the US and, as such, exerts significant influence on home valuation practices.

The most recent edition of the FHA's Single Family Housing Policy Handbook requires that active and passive solar energy systems (including solar photovoltaic panels, solar hot water, and passive solar design) be assessed as 'Special Energy Systems', and their value added to the home. According the FHA's guidelines, appraisers "must analyze and report the local market acceptance of special energy-related building components and equipment".

While the FHA's Handbook does not include dollar figures (see the Lawrence Berkeley Lab's recent report for indicative numbers), it does recommend a number of possible valuation methods for assessors to use. The first valuation method it recommends is the "Sales Comparison Based Extraction Model", which entails examining the actual sales prices of similar homes, with and without solar. This is the FHA's preferred method for calculating value because it is based on real market data; the other methods are presumably included as back-ups for cases where no robust data is yet available.

All of these methods that the FHA describes implicitly assume that you, as the homeowner, are the also owner of the solar panels. The FHA does not explicitly mention cases in which the panels have been financed with a solar lease/PPA, but it is fairly clear that if you do not own your solar panels yourself, they may not be included an assessment of your home's value: "Special Energy Systems not part of the Real Estate must not be included in the appraised value."

FANNIE MAE SAYS THAT SOLAR PANELS ADD VALUE TO YOUR HOME (BUT ONLY IF YOU OWN THEM)

The second document that we examined is Fannie Mae's Single Family Selling Guide (from December 2014). This document contains guidelines about which properties the company can furnish mortgages for. Fannie Mae is one of the largest FHA-approved lenders in the country, and like FHA, has strong influence over the nation's market for single-family home mortgages. If a potential buyer wants to secure a mortgage for your home with Fannie Mae, your home must meet the eligibility requirements described in their Selling Guide.

With regard to solar, the important point to take away from Fannie Mae's Guide is this: If you own the solar panels on the roof of your home, you only need to meet the standard eligibility requirements in order for Fannie Mae to purchase or securitize a mortgage on your property - the same requirements that would apply even if you had no solar system. On the other hand, if you do you do not own the system (i.e. you have financed it through a solar lease/PPA), its value cannot be included in the value of your home when it is appraised.

On top of this, there is more red tape if someone wants to secure a mortgage through Fannie Mae on a home with a leased solar energy system. Some of the additional requirements for homeowners who finance their solar panels with solar leases/PPAs include:

* The solar lease payments must be incorporated into the potential buyer's debt-to-income ratio.

* The owner of the panels (i.e. the solar leasing company) must have third-party insurance to cover damage to the mortgaged property caused as a result of malfunction or faulty installation of the panels.

IS THERE ANY WAY A SOLAR LEASE/PPA COULD INCREASE THE VALUE OF MY PROPERTY?

The FHA and Fannie Mae are clear that solar systems installed under solar leases/PPAs cannot be included in the official valuation of homes for mortgages. It is still unclear, however, whether they will add value or be viewed as a liability when you want to sell your house - the answer to this question may depend on your location and the terms of your leasing/PPA arrangement. As time goes on and more real estate market data about sales of homes with solar leases/PPAs becomes available, we will begin to get a better understanding of how solar leases/PPAs affect home values and the speed of sale.

IN THE MEANTIME, YOU CAN'T GO WRONG BY PURCHASING YOUR SYSTEM OR FINANCING WITH A SOLAR LEASE

What is certain is that a solar energy system will add value to your home if you own the system - either by purchasing it outright with cash or financing it with a 0-down solar loan. If you'd like to learn more about purchase and loan options, EnergySage can help. Get a free, instant estimate about how much you could save with solar and shop on our Solar Marketplace to compare solar offers (including leases, PPAs, loans and cash purchase) in your area.

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Credit: green-energy-digest.blogspot.com