I was fortunate last Spring to be a breakout session speaker at the Arizona Association of REALTORS® spring conference in Prescott, Arizona. My presentation was Solar: Burning Up the Deals.
As you can guess from the title, the subject was solar systems and how they affect buyers, sellers and real estate agents during the real estate transaction.
One topic agents and their clients are dealing with is the confusion over FHA loans and leased solar systems on houses. While FHA has an energy efficient mortgage that allows the buyer to pay more than market value for a house with an owned solar system, FHA does not insure mortgages on houses with leased systems. Even if the lease is paid off.
I was fortunate to have Sherry Olsen from Desert Schools Credit Union in attendance and she confirmed this. She has spoken with the FHA representative for our area regarding this subject. Even with Sherry’s input, some agents questioned this. So I looked it up. Below is from the FHA Handbook, updated March 14, 2016:
iii. Title to Systems
The Borrower must own, not lease, solar or wind energy systems for the systems to be considered eligible improvements. Leased equipment and Solar Power Purchase Agreements (SPPA) may not be financed under any FHA Title II programs.
You can find this on page 445 of the handbook.
As buyer’s agents it is important we know what houses qualify for our client’s loan product. Agents with buyers who want to purchase a house with a FHA loan may want to explain to their buyer that showing them houses with leased solar systems is a waste of time, because FHA won’t approve the loan. If the buyer wants to purchase a home with a leased solar system, the buyer should get approved for another loan product that will allow leased solar, or accept the fact that owning a home with leased solar already on it is not in the cards.
Sellers and their agents selling homes with leased solar systems need to offer the house for sale with proper terms of sale. That means no FHA terms on homes with leased solar systems since the house does not qualify for the loan.
With all the government rules and rule changes surrounding lending and the real estate transaction, it has become more necessary than ever that we and our clients have a team of other real estate industry professionals we can garner information from. Servicing our clients is more than timely return phone calls and signs in the yard.
Helping buyers determine before they look at houses, which houses they are qualified to purchase is critical in avoiding buyer frustration. Helping sellers with leased solar systems understand how their most likely buyer will or will not be affected by the leased system and helping the seller avoid offering terms they are unable to honor is critical in avoiding seller frustration.