New Mortgage Leads to Residential Solar

By Linda Seggelke

What if a homeowner decides to purchase solar panels? The most routine and most cost-efficient route to residential solar is through leasing. But a new type of mortgage now makes solar ownership a possibility.

The HomeStyle Energy Mortgage is a new product from giant investor Fannie Mae. It is intended to allow homeowners the ability to purchase solar panels or make other energy-efficient home upgrades. Because it makes use of long-term lending, the loan can be had for less than 4% interest.

Grand Canyon: Multi-Family Housing 8227Currently, most companies only allow homeowners to lease solar panels. Purchasing the panels outright will not only drastically cut utility bills, but add equity to a home. Additionally, an owner looking to sell his or her home can nullify potential buyer objections to taking over the payments of a leased panel system.

“With HomeStyle energy, our approved lenders can help borrowers finance updates to make their homes more comfortable and efficient,” said Jude Landis, Vice President of Credit Policy at Fannie Mae. “With two simple options, borrowers can either pay off existing energy improvement debts … or make cost-effective energy improvements up to 15% of the property’s appraised value.”

The new mortgage is really meant for any efficiency upgrades around the house, such as weatherization, boiler replacement or added insulation. However, the upfront cost to purchasing solar panels has historically been too high for most homeowners, which makes this the perfect path for them to do so. In addition, borrowers can now acquire the 30% federal investment tax credit for purchasing solar panels that is unavailable to homeowners who lease the panels.

There are a few caveats, of course. Owners are limited to a loan of 15% of the as-completed appraised value of the home for energy upgrades and the portion of the loan designated for these improvements must be placed into escrow. Appraisers must verify that the energy upgrades are eventually completed to justify the enhanced valuation of the property. Upgrades totaling more than $3,500 require an energy efficiency analysis such as a Home Energy Rating Systems (HERS) report.

The HomeStyle Energy loan can also be used to pay off existing energy-related debts, such as credit card balances, home equity lines of credit and Property Assessed Clean Energy (PACE) liens. This might be the more likely route that most homeowners would take advantage of the HomeStyle Energy loan.

When a major appliance fails, such as a hot water heater or air conditioner, a homeowner is presented with an ideal opportunity to upgrade the efficiency of his or her home. Most, however, are put off by the added upfront cost and opt for a cheaper, less efficient system. With the HomeStyle Energy loan, homeowners can instead purchase the more efficient appliances and pay them off at mortgage-grade interest rates.

This mortgage is an ideal way to add energy efficiency and market value to a home. Whether buying or refinancing a house, the owner won’t have to borrow at unfavorable interest rates, but can instead roll them into a long-term mortgage. In the end, the homeowner benefits while the housing stock becomes more efficient.

Image: NPS/Michael Quinn

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