The Lender's View: Underwriting a Claremont Home That Has Solar

Two different people at two different institutions look at a solar home during a purchase, and they are not asking the same question.

The appraiser is asking what the property is worth. The underwriter is asking whether the loan is a sound one, whether the borrower can carry it, and whether anything attached to the property complicates the lender's position.

Those questions produce different answers, and confusing them is how buyers end up surprised late in a transaction.

What follows describes the shape of the process. Loan programs differ, lenders differ, and the only authority on a specific file is the lender handling it. The point here is to know what to hand them and when.

The obligation question

Where a system is leased or supplied under a service agreement, the homeowner has a recurring payment. That payment is a fact about the borrower's monthly obligations, and a lender may treat it as one when assessing what the borrower can afford.

The practical consequence is straightforward. A buyer who has been pre-qualified without mentioning that the house they are now in contract on carries a solar payment has been qualified for a slightly different scenario than the one in front of them.

This is not usually dramatic. It is occasionally decisive, particularly for a buyer who is already close to the edge of what they qualify for. Either way, the way to find out is to tell the lender early rather than to hope.

The lien position question

The second thing an underwriter cares about is what else is attached to the property and where it sits relative to the mortgage.

A lender making a first-position loan wants to be in first position. Where a solar arrangement produced a recorded filing against the parcel, the lender may require that interest to be released, or to be expressly subordinated, before it will fund.

Subordination is a document somebody at another institution has to agree to and then produce. It is a routine request in the industry and an unpredictable one in its timing, which makes it exactly the sort of item that should be identified from the title report early. What appears there and why is covered in the title report guide.

Where the arrangement is instead a debt in the seller's name, the resolution is a payoff rather than a subordination, and the mechanics of that are in the loan payoff guide.

The obligation that does not go away

Where an improvement was financed to be repaid through the property tax bill, the obligation is attached to the parcel and continues after a sale. Lenders take an interest in that, because it affects the property's ongoing costs and, depending on how the arrangement is structured, the lender's position.

Some loan programs treat this kind of obligation restrictively. A buyer looking at a home with one should raise it with their lender as an explicit question rather than assuming it is a detail escrow will handle, because the answer can shape whether the intended financing works at all.

How the appraisal fits

The lender relies on an appraisal, and appraisals treat owned and non-owned equipment very differently.

An array the homeowner owns outright is part of the real property and can be considered as a feature of it. Equipment belonging to a third party under a contract is generally not the homeowner's to convey, and the appraiser is not valuing somebody else's property as though it came with the house.

That distinction, and what an appraiser actually needs in order to give an owned system any consideration at all, is the subject of the appraisal guide. The relevance here is that a lender's view of value flows from that report, so a poorly documented owned system is a lending problem as well as a valuation one.

What to send, and when

The single most useful action in this entire subject is unglamorous: send the solar documents to the lender AT APPLICATION.

That means the contract if there is one, the payment amount and any escalation term, the assumption requirements, the interconnection authorization, the permit record, and whatever the title report shows.

Sending it early costs nothing. Sending it late is how a file that was progressing normally stops three days before closing while somebody reads a thirty page agreement for the first time.

Lenders do not enjoy surprises and they are not fast when they receive them. A borrower who front-loads the paperwork is making their own closing date more likely, which is a self-interested reason to do something that also happens to be good manners.

Refinancing an existing solar home

The same questions return, aimed at the current owner instead of a buyer.

An owner refinancing a home with a recorded solar interest may find the new lender requires a subordination from the holder of that interest. It is obtainable, it is routine, and it takes time. An owner who starts the refinance without knowing what is recorded against their own parcel is likely to learn about it at the least convenient moment.

Pulling a current title report before starting is cheap insurance for anyone in that position.

For sellers

A seller's interest in all of this is simple: the buyer's financing is what closes the transaction.

Anything a seller can hand over that shortens the lender's path is worth handing over on day one. A complete, organized solar file does more to protect a closing date than any amount of chasing later, and it costs the seller nothing but the time to assemble it once.

For the wider map, return to the solar guide. Qualification, program rules and document requirements are questions for the lender handling the file; recorded interests are questions for the title officer. Anthony Grynchal has been licensed in California since November 2009.