Written By: Angelique Jackson, Op-Ed Writer
In the age of green technology the mortgage industry is beginning to see more properties with Solar Photovoltaic (SPV) systems, more commonly known as Solar Panels. In this 2-part article we will cover what solar energy is, how it works, the types of financing available and the documentation requirements. What are some of the benefits of using solar energy? It helps conserve our fossil fuel resources and reduces our reliance on imported fuels. Also, the solar energy systems do not emit harmful pollutants helping us protect our environment and lastly, it’s FREE! So if it’s free then what are you paying for? You are paying for the equipment needed to convert it to electricity.
Now that we have touched upon some of the benefits of solar energy, let’s talk briefly about how solar energy works. Solar Panels are made of photovoltaic (PV) cells which convert sunlight into Direct Current (DC) electricity throughout the day. An inverter changes the DC electricity to Alternating Current (AC) electricity which travels into the home through the electrical panel or “breaker box.” During the day, excess AC electricity not used in the home is sent back to the utility grid, resulting in a credit to the homeowner, this is net metering. Net metering allows resident to get credit for extra electricity produced by their solar panel at peak retail prices during the day (the electric meter spins backwards giving energy back to the grid) and draws from the grid during the night, at lower off-peak rates (the electric meter spins forward returning electricity from the grid to the home). The homeowner will have an additional monthly bill to pay beyond their regular monthly electric utility bill, however, the electric bill should be greatly reduced.
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Now let’s talk about the types of solar panel financing you may encounter. There are four types of solar financing: Solar Leases, Power Purchase Agreements (PPA’s), Solar Loans and the Property Assessed Clean Energy (PACE) Program.
Solar Leases. Solar Leasesare scheduled monthly lease payments that must be included in the debt-to-income (DTI). Leases help eliminate most or all upfront costs, maintenance and operations costs associated with operating a solar energy system. The developer installs and owns the solar system, and is responsible for the maintenance, monitoring and insurance for the systems. A standard lease term is 15-25 years and typically comes with a minimum performance or production guarantee, compensating the borrower if the solar panel system fails to meet the energy output required for in the lease for that period. State or federal tax credits associated with owning the solar energy system will go to the 3rd party owner of the system, the homeowner does not reap the benefits of tax credits. The appraisal should not give value to the solar panels. Title will reflect a UCC financing statement or Notice of Independent Solar Energy. The UCC financing statement termination or Release of Notice of Independent Solar Energy would need to be obtained as evidence of its removal at closing.
Power Purchase Agreements (PPA’s). PPA’s are solar energy agreements where the homeowner purchases the energy generated by the system. The homeowner only pays for the energy that was produced. PPA payments are excluded from the DTI since the payments are solely based on the energy produced. As with solar leases, a third party buys, installs and maintains a solar system, the third party is the owner and therefore the beneficiary of any state of federal tax credits. As with a solar lease, the maintenance, monitoring and insurance is the responsibility of the third party owner.The appraisal should not give value to the solar panels.Title will reflect a UCC financing statement or Notice of Independent Solar Energy. The UCC financing statement termination or Release of Notice of Independent Solar Energy would need to be obtained as evidence of its removal at closing.
Solar Loans. A homeowner has borrower money from a lender or solar developer for the installation of a solar PV system. The homeowner owns the system and is therefore the beneficiary of all state and federal tax credit as well as responsible for the maintenance, monitoring operation of the system. The loan payment is included in the debt-to-income (DTI). The appraisal should give value to the solar panels. The system is not covered under an insurance policy or warranty, it is the homeowner’s responsibility to seek out insurance.
Property Assessed Clean Energy (PACE) Program. Some jurisdictions have the PACE program where you get financing for a solar system and energy efficient improvements/upgrades and the homeowner pays back the loan over an assigned term of years (15-20 years) through their property taxes. The PACE assessment is attached to the property rather than to the homeowner making it easier for homeowners to purchase a solar PV system even if they may want to sell their home before the system is fully paid off.
We have talked about solar energy, how it works and the types of financing available. Next week, we will go in-depth on the types of documentation needed for properties with solar panels along with the specific requirements for Fannie, Freddie, FHA and VA.
Until next time!
Solar Fun Fact: The energy emitted in 1 hour by the sun is adequate to cover the energy needs of the entire world population for 1 year.
About The Author
Angelique Jackson has had a passion for the mortgage business for the last 14 years holding various positions in the industry including customer service, closing, processing, underwriting, loss mitigation, Operations Manager and VP of Compliance and Training. She has helped open operations centers and has trained over 1200 students nationwide. She currently serves as the Senior Credit Trainer for a major mortgage lender and instructor at Mortgage University. She is a bibliophile who enjoys learning about almost everything, and when not being a nerd, she loves attending Cleveland Cavaliers basketball games (she is a season ticket holder), spending time with her two goddaughters and traveling.