Buying an Arizona Home With Leased Solar Panels

Leased solar panels don't by themselves rule out a mortgage on an Arizona home. On a conventional loan that follows Fannie Mae's guidelines, the lender must review the agreement, and the lease can affect two things your lender reviews: what you qualify for and what the home appraises for. The lease itself is the document that can decide how much it matters, so read it before you write your offer.

When the panels belong to a solar company instead of the seller, you are not just buying a house. You may also be taking over a contract.

Leased, PPA or owned: find out first

The first question is who owns the panels, because the answer changes everything else. There are usually three setups:

Owned outright. The seller paid cash, paid off a solar loan, or the panels came with the house. Under Fannie Mae's guidelines, these generally fall under the standard requirements for the home.
Leased. A solar company owns the equipment and the homeowner makes a regular lease payment to use it.
Power purchase agreement (PPA). A solar company owns the equipment and the homeowner pays for the electricity it produces.

Under Fannie Mae's guidelines, lenders are responsible for determining who owns the panels and how they are financed. When the panels are leased or under a PPA, the lender must get and review a copy of the agreement.

For panels that are owned, Fannie Mae says its standard appraisal, insurance and title requirements apply. Panels with a solar loan still attached are a different case: under those guidelines, that debt is counted in your debt-to-income ratio, and whether the panels can count toward value depends on whether they can be repossessed if the solar loan isn't paid.

How a solar lease can affect what you qualify for

A solar lease payment can count as a debt when your lender figures out how much house you can afford. Under Fannie Mae's rules, the monthly lease payment is generally included in your debt-to-income ratio, the comparison of your monthly debts to your monthly income.

There is an exception. If the lease delivers a set amount of energy for a fixed payment and promises to pay you back when the panels produce less than promised, the payment may not have to be counted. Fannie Mae also says PPA payments based only on the energy produced may be left out.

What this means in plain terms: two homes at the same price can leave you with different buying power, depending on how the solar contract is written. If you're close to your limit, that difference can matter.

These are Fannie Mae's conventional loan rules. FHA, VA and other programs have their own guidelines, so your lender will need to determine how your specific loan treats the contract. If you haven't yet, getting pre-approved before you shop gives you a starting point to measure a solar home against.

How leased panels are treated in a conventional appraisal

Under Fannie Mae's guidelines, leased panels can't be counted toward the home's appraised value. Fannie Mae's appraisal guidance says panels that are leased, or owned by a third party under a PPA, must be considered personal property and left out of the appraised value.

That matters if a listing price leans on the solar as a selling point. On a conventional loan that follows those guidelines, the appraisal looks at the home without the leased equipment, and other loan programs set their own appraisal rules. If the price assumes the panels add value, ask your agent how comparable homes support it before you settle on a number.

What the lease has to say

Fannie Mae also sets requirements for the lease or PPA itself. On a conventional loan that follows those guidelines, your lender will check for these, so it helps to know them going in:

Backup power. The home must keep access to another source of electric power that meets community standards.
Repairs and removal. The solar company, as owner of the panels, has to be responsible for damage caused by installing, malfunctioning or removing the panels, and has to repair it and return the improvements to their original or prior condition.
Insurance. The solar company can't be named as a loss payee or insured on your homeowners policy, or the lender verifies it isn't.
Foreclosure terms. The agreement has to give the lender certain options with the contract if the home ever goes to foreclosure.

If a lease is missing something the loan requires, the lender will need to determine how that affects your loan, so it's better to find out before you're under contract.

Questions to ask before you write an offer

Ask the seller or listing agent for the full solar agreement, not a summary. Then go through it with these questions:

Is this a lease, a PPA, or owned panels with a loan still attached?
What is the payment, and does it stay the same or change over time?
How many years are left on the contract?
What does it take to transfer the contract to you? Is there a credit check, an application or a fee?
Who handles repairs, roof work and removal if the panels ever need to come off?
Has the solar company recorded anything against the property, and will it need to be addressed at closing?

Ask your agent how your purchase contract will handle the solar agreement before you sign.

The bottom line on leased solar in Arizona

Leased solar doesn't automatically rule out a home. It's a contract that comes with the house, and your lender will likely look at it on three fronts: who owns the panels, whether the payment counts against what you qualify for, and whether the agreement meets the loan's rules. Read it early, and run the numbers with your lender before you fall for the house.

If you're shopping in Arizona, start with Diane's Arizona mortgage page. Not sure where you stand yet? Take the quick homebuyer quiz to see your next step, or call 719-687-2112.

Diane also helps buyers in Arizona, Montana and Florida.

Diane Beaumont, Mortgage Loan Originator, NMLS #247026. Benchmark Mortgage, a dba of Ark-La-Tex Financial Services, LLC, NMLS #2143. Equal Housing Lender. Not a commitment to lend.