With raising interest rates and the current inflationary climate, buying a home is like throwing darts blindfolded; you are not sure where the interest rate will be when you are ready to close on the property.
As inflation is surging, it is putting pressure on mortgage rates. The Federal Reserve is likely to keep raising rates this year with the goal of containing consumer prices. While the Fed doesn’t control mortgage rates, its policies have an ancillary effect.
At times like this, homeowners have to use every tool in the toolbox, and solar installation is a vital one to contain/reduce monthly costs. Buying a home that has a solar energy system, or having one installed upon purchase is a savvy financial move that also benefits the environment.
Home appraisers, who review property for mortgage companies, understand that that the installation of solar panels and solar batteries can increase a property’s market value. In fact, a Zillow study indicated that homes with solar panels sold for 4.1% more than those without.
“The sale premium varies substantially by market,” reports Zillow. “In Riverside, Calif., for example, homes with solar-energy systems sold for 2.7% more than comparable homes without solar power—a markup of $9,926 for the median-valued home in the metro. In the greater New York City metro, solar-powered homes have a premium that is double that of Riverside. At 5.4%, that’s an extra $23,989 in value for the typical home in New York. In three other coastal metro areas—Los Angeles, San Francisco and Orlando, Fla.—homes with solar power can fetch a premium of around 4%.”
Getting a solar system installed is like creating your very own power plant. Homeowners make energy right on their own property instead of relying completely on the utility company to do it for them. While you can’t disconnect completely from the grid, homeowners have the ability to generate their own power every time the sun comes up.
For homeowners paying $70 or more on electricity bills each month, there are programs available that could permanently lower electric bills up to 75% with no upfront costs.
Smart Solar Financing
According to the U.S. Office of Energy Efficiency And Renewable Energy, the average cost of solar PV panels has dropped nearly 70%. Markets for solar energy is economically competitive with conventional energy sources in most states.
A solar system is either leased or purchased. Whether you buy a system or lease it, the use of solar energy will significantly decrease monthly energy costs and increase the value of the home.
Increase Purchasing Power
An energy-efficient mortgage or green mortgage allows borrowers to finance energy-efficient improvements under advantageous loan terms. A green mortgage offers added funds with the mortgage purchase or refinance that can be applied to energy-efficient home upgrades. To qualify, applicants must meet the standard mortgage requirements of credit and debt-to-income ratio and an energy consultant develops a home energy rating report to estimate potential energy savings.
Tapping into a green mortgage can increase purchasing power and allow home buyers to qualify for a larger mortgage. And, for those people buying a home that already is energy efficient, the monthly bills will be lower.
Other ways to increase purchasing power are reducing debt, reviewing credit scores to see where any improvements can be made, and stash as much money away as you can for the down payment and closing costs and eliminate the need for mortgage insurance.
Explore First-Time Home Buyer Programs
For those who are buying their very first home, there are a variety of homebuyer assistance programs available at the national and local level. On the national level, there are Federal Housing Administration (FHA) loans that are insured by the Federal Housing Administration, a government agency that sets standards for the construction and financing of homes in the United States. With a FICO® credit score at least 580, home buyers are required to put down a 3.5% down payment vs. the 20% that is industry standard.
Home buyers should also investigate their state and city level options for first-time home buyers. In New York City, for example, “the HomeFirst Down Payment Assistance Program provides qualified homebuyers with up to $100,000 toward the down payment or closing costs on a 1-4 family home, a condominium, or a cooperative in one of the five boroughs of New York City.”
Set a Budget
Before starting the housing hunt in earnest, it is important to understand how much house is affordable. Generally, keeping housing costs to 30% or less of after-tax income is the recommendation. Getting pre-approved for the mortgage is recommended so that the house-hunt can proceed with confidence.
Consider that while mortgage rates today are on the rise, they are still relatively low on historical standards. In 1981, according to Fannie Mae data, the annual average interest rate was 16.63%! There are many benefits that come along with home ownership including tax deductions, financial stability, a permanent home and sense of belonging in the local community.