Weekly Rate & Market Update 5-27-16
Question of the week: We are looking at purchasing a property with solar panels, are there any concerns we should have?
Answer: This is a question I answered early last summer and friend and local real estate agent Julaine suggested I cover it again. Good idea Julaine, for those who missed last summer’s review of buying a home with solar panels, or newer readers of the Weekly Rate & Market Update here is some useful information. With more and more families putting solar panels on their homes this issue is arising more frequently in home sales. Back to our answer….
Yes, there are concerns you should have, unless you are paying cash for the property.
The residential solar power industry has been prolific in marketing, seemingly every commercial break on the radio, every other piece of junk, I mean bulk, mail you receive, door to door salesmen, phone solicitors are pushing their product: solar panels that will eliminate your electric bill and pay for themselves.
What is not part of their sales pitches is that depending on how you acquire your panels, are you buying them or leasing them?
If you buy the panels then there is no issue with your mortgage. Just make sure the seller of the property can provide you proof that they own the panels and there is no separate lien on them—or if they did take out a loan to buy the panels the loan is either paid through the sale if attached to the property, or is a personal loan and the panels are in no way encumbered.
Most solar companies however are not pushing selling the panels but rather leasing them. Should there be leased panels on the home you are buying this triggers a strict set of guidelines that must be followed before your mortgage application will be approved. Here are the guidelines as paraphrased from the guidelines issued by Fannie Mae regarding leased solar panels.
The solar panels cannot be included in the value of the home for the appraisal. Some sellers have their properties with leased panels on the home priced as if the panels were part of the property, since they are leased they are not considered as part of the property and therefore no value is given—similar to an unpermitted room.
The lease must be underwritten by the lender and any part of the payment that is not part of a power purchasing agreement must be including in debt-to-income (DTI) calculations. The lease must indicate that the solar panels are removable without causing damage to the property, any damage that does occur as a result of the panels being removed is the responsibility of the equipment’s owner and the owner is obligated to repair any damages and return the property to its original condition.
Your insurance company also becomes involved as the owner of the solar panels cannot be named as a loss payee on your homeowner’s policy. If the solar company requires the panels to be insured the policy must be separate from your homeowner’s policy. As well your policy cannot exclude from coverage tort liability you may have due to the solar contract nor coverage for any losses to the property because of the panels. The solar company that owns the panels must have a general liability policy covering damage to the property as a result of faulty installation, malfunction or other defects—even if not covered by the warranty.
If the lender forecloses then the lease must be able to be terminated by the lender and the solar company remove the panels, or if the lender does not want the panels removed then the lease transfers to the lender at no cost or the lender is able to enter a new lease under the same or better terms. Any lease must also be assignable to whoever purchases the property from the lender post-foreclosure.
If you own a home with leased solar panels then I strongly advise that you read all the conditions of the lease sooner rather than later. Too often consumers build a trust with salesmen and then skip through the fine print on contracts as the salesman give his summary of the clauses—which may not be entirely accurate or entirely disclose the clauses. Even if you have no intent on selling your home in the near future, if you have leased solar panels the lease my impact your ability to sell your home when the time comes and the sooner you know all the impacts of your solar lease on any potential sale the better prepared you will be.
If you are considering purchasing a home with solar panels and there is a lease put in your offer an opportunity to review and approve the lease as one of your contingencies, similar to an appraisal or property inspection contingency. If you do not approve the lease then you can cancel the contract and have your earnest money deposit returned.
Solar power is a tremendous resource, especially here in Southern California, and something Leslie and I have considered for some time. We have not made the commitment however due to the cost to purchase the panels for our home, and we will not lease the panels in part because of the issues listed above. If you are considering putting on panels thoroughly review the lease to make sure you are going to be able the sell the home with the buyer using a mortgage in the future, otherwise you will incur expenses to either get out of the lease early, or have to take a reduced price.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Boom! That was the sound of the new home sales in May as the market exploded with the most sales in one month since January 2008 with an annualized rate of 619,000 homes sold. For perspective the next highest month of sales was February 2015 with 545,000 sales. Quite a difference. The news is mortgage rate unfriendly as higher home sales can demonstrate a strengthening economy. However many feel that economic growth we have experienced is primarily being supported by new and existing home sales which would dampen the impact on rates.
Durable Goods Orders were mixed in April. Total orders were very strong, which is good news for the economy, however “core capital goods” which are gauge to business investment dropped for the third straight month and fifth of the last sixth—not a good omen for economic expansion or future employment growth. The news had not as much impact on rates as it should have if the growth in the headline number was supported by growth in all sectors.
The first revision to the first quarter GDP did not improve the soft growth initially reported. Real GDP was revised up from 0.5% growth to 0.8%, good that the revision was up and not down but 0.8% is no reason to celebrate. The price index was revised down 0.1% to only 0.6% growth year over year. This data does not give much support to a Fed rate increase next month.
Rates for Friday May 27, 2016: Mortgage Backed Securities (MBS), which determine our rates, had a see-saw week with big moves intraday but ending each daily mostly flat. Investors are trading to secure profits as well as following the herd ahead of the next Fed announcement. When daily trading gets volatile and day to day trading is somewhat flat it signifies a possible/probable break out one way or the other—which means if you are floating you could get caught in an uprate environment very quickly. Take the risk out of your mortgage payment and lock when you can.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.50% Flat
30 year high-balance conforming 3.625% Flat
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits
Finally, Memorial Day and I can wear my white apparel again….
Enjoy the long weekend, I will be engaged in defoliating the vast Smith Estate of by removing or trimming trees, bushes and plants. However you spend your weekend take time to give thanks for those in our history who put on the uniform to protect our liberties and freedoms.
Have a great week,
Dennis
