Most would agree that the use of solar panels is a good thing. The energy is forever renewable, there are less fossil fuels used and thus less pollution. Besides, “going green” these days is a hip thing to do!
However, you may be shocked to learn that the energy-efficient house you fell in love with…
may NOT be mortgagable!
Solar panels are expensive to purchase, with installation costs measured in the tens of thousands of dollars. It takes many years – even decades – to recoup the outlay in energy saved. Recently solar power companies have figured out a way to reduce the costs for the average homeowner. These companies offer to lease the equipment to homeowners with fixed payments for up to twenty years. And at the end of the lease, they let the homeowner keep the panels. It sounds like a great plan! Right??
At face value, this DOES sound like a great opportunity for both the homeowner and the solar company. But we can always depend on the hyper-regulation and underwriting criteria of our mortgage industry to find the unintended consequences and add complications.
Statistically speaking, most homeowners stay in their home around ten years before selling. Yet the terms on these solar panel leases can be as long as twenty years! So what happens when that homeowner decides to sell their energy-efficient home, solar panels and all?
Either the homeowner must buy-out the balance of his solar panel lease which could cost the homeowner tens of thousands of dollars, or the new buyer must qualify to assume the solar panel lease. This means the new buyer must qualify for his mortgage and a solar panel lease! Plus, these solar panel payments which could easily be many hundreds of dollars per month must be included in the borrower’s Debt-To-Income ratios! How many qualifying problems do you think this will cause?
But what happens if the new buyers don’t want these “decade old” solar panels? Is the seller willing to spend the money to remove the panels, rewire the electrical system, and pay the early termination charges on the solar panel lease?
According to Lynn Farris, a real estate agent with Windermere Hulsey and Associates in Vacaville, CA, disputes arising over solar panel leases are becoming an “increasing problem” for sellers and buyers. And because of the increasing popularity of solar, the problem is going to get worse. She claims she’s seen sales fall apart when the parties couldn’t agree on how to handle the substantial payments owed on long-term leases – in one case it was nearly $30,000 – or because buyer thought the leases were “really bad deals.”
Let me be clear; I’m NOT saying that solar panels are a bad idea. However homeowners and home buyers do need to understand the big picture before they make a buying decision.
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.