Most of us don’t just have an extra $25,000 lying around—if we did, the credit card companies would all but go out of business! Unfortunately, though, that’s what it costs—pre-incentives—for an average solar energy system installation. While rebates and energy savings can make back what you spend fairly quickly, there’s not a whole lot you can do if you don’t have the initial capital.
Until now, that is. In April 2016, popular lender Fannie Mae announced a new program that it has devised to help homeowners afford energy improvements—namely, solar. The HomeStyle Energy Program offers mortgage loans for new and refinanced homes. Borrowed funds can be used toward solar panels or energy efficiency projects—you can even get up to $3,500 for weatherization or water-efficiency upgrades. It’s a clear-cut path to solar for those of us who aren’t millionaires—and it comes with some perks you might not get with your standard solar loan.
Sound good to you? Here’s what you should know about the Fannie Mae’s energy financing before you sign on the dotted line.
Taking an Energy Mortgage Loan Means Borrowing Against Your Home
Solar panels aren’t cheap, so you usually won’t be able to score an unsecured loan from your bank for that amount. If you opt to apply for Fannie Mae’s energy mortgage loans, the loan will be secured with your home as collateral.
That means if you default on your loan, you could potentially stand to lose your home, as you might with any mortgage. For some potential participants, that’s just too great a risk. It also means you may not pay off your mortgage as quickly. That’s not to say that a mortgage loan is a bad investment—secured loans offer some of the best interest rates, since they’re backed up with your property as collateral. That means you can potentially purchase your solar energy system for less than a standard solar loan.
The Fine Print of the HomeStyle Energy Program
Of course, every loan program has its ins and outs, and the HomeStyle Mortgage Loan Program is no different. One potential complication? Your project has a deadline. Fannie Mae requires you to submit an energy report to them assessing the cost versus energy savings of your improvement. After that, you must complete your project within 180 days after you receive your mortgage note. Depending on the speed of your solar installer, and how quickly your energy provider processes paperwork and connects you to the grid, the process of installing your solar energy system could drag on a lot longer than that. It’s not rare for solar installations to take six months or more.
Another issue may arise with the lending approval process. Fannie Mae won’t let just anyone sign up for the program—you need to sign on with an approved lender, such as JPMorgan Chase, Wells Fargo, or one of Fannie Mae’s other mortgage underwriting services. Each one of these companies may have their own set of requirements for approving loans, so you’ll want to make sure your assets and credit are in good shape before you inquire.
For Most HomeStyle Loans, You Must Obtain an Energy Report
Like most lenders, Fannie Mae doesn’t just take you at your word that you’ll perform energy updates. In order to qualify for the loan, you need to submit your intended improvements in writing. In most cases, this is done by obtaining an energy report—specifically, a Home Energy Rating Systems (HERS) report compiled by a professional rater. You can find a list of accredited raters here.
You can also get up to $3,500 for small energy and water efficiency upgrades without submitting an energy report, however. Call 1(800) 2FANNIE if you have questions about these requirements.
Using HomeStyle Refinancing to Pay Off PACE Debts and Other Solar Loans
Did you invest in solar early, before the energy mortgage was even an option? No worries—you may be able to take advantage of Fannie Mae’s refinancing program. Through HomeStyle financing, any PACE loans you took on before July 6, 2010, can be cashed-out and refinanced through Fannie Mae.
If you applied for your PACE loans after that date, they can also be cashed out—although the amount will be limited to 15 percent of your home’s appraisal value. Likewise, other secured and unsecured loans taken out to purchase solar panels or other energy efficiency improvements can also be cashed out at up to 15 percent of your home’s worth.
Why would you want to refinance? Typically mortgage loans cost less, when all’s said and done. Lower loan rates mean that you can potentially get your solar energy system for much less green than you could with PACE or third-party lending.
All in all, choosing to apply for a loan is a very personal decision—and Fannie Mae’s program won’t be for everyone. But if you can stand the paperwork and lengthy application process, it’s one way to nab a low-interest loan—and start taking advantage of solar today!