Fannie Mae, Freddie Mac & FHA Mortgage Underwriting Rules on Solar Leases & PPAs
Why home buyers get rejected by mortgage underwriters 7 days before closing over an existing solar lease or PPA—and how Fannie Mae Selling Guide B2-3-04 treats Pure Power Purchase Agreements differently from Fixed Solar Leases in Debt-to-Income (DTI) math.
1. Step-by-Step Legal & Escrow Execution Protocol
The Crucial DTI Distinction in Fannie Mae Selling Guide B2-3-04: Mortgage underwriters MUST include a fixed monthly Solar Lease payment in the homebuyer’s monthly Debt-to-Income (DTI) ratio! At 6.75% mortgage rates, adding a $240/month solar lease payment reduces a buyer’s purchasing power by ~$36,000—often disqualifying the buyer right before closing!
The Pure Per-kWh PPA Exemption (Fannie Mae B2-3-04): Under Fannie Mae Selling Guide B2-3-04, payments under a Power Purchase Agreement (PPA) where the payment is calculated SOLELY based on the actual kWh energy produced (with no guaranteed minimum monthly payment if the system produces 0 kWh) MAY BE EXCLUDED from the borrower’s monthly DTI ratio because it acts as a utility bill substitute!
Mandatory Title & Collateral Requirements under B2-3-04: Whether it is a lease or PPA, Fannie Mae requires that the solar agreement must NOT allow the solar company to place a lien on the real estate superior to the first mortgage, and any UCC-1 fixture filing must be subordinated or released so the mortgage has clear First Lien priority.
2. 1-Click Legal Demand & Escrow Notice Template
Customize the bracketed fields and send via Certified Mail (Return Receipt Requested) and email to the solar lessor's Legal/Escrow Department.
MEMORANDUM TO MORTGAGE UNDERWRITER — FANNIE MAE SELLING GUIDE B2-3-04 DTI EXCLUSION
To: Senior Mortgage Underwriter
Lender: [Insert Mortgage Lender Name]
Loan Number: [Insert Loan #] | Borrower: [Insert Buyer Name]
Subject Property: [Insert Property Address]
Re: Exclusion of Per-kWh Solar Power Purchase Agreement (PPA) from Borrower DTI Ratio per Fannie Mae Selling Guide B2-3-04
Dear Underwriting Team,
Please review the attached Solar Power Purchase Agreement (PPA) for the subject property under Fannie Mae Selling Guide Section B2-3-04 ("Properties with Solar Panels").
Under Fannie Mae Selling Guide B2-3-04, if the solar panels are leased from or owned by a third party under a Power Purchase Agreement (PPA), the monthly payment MAY BE EXCLUDED from the borrower's Debt-to-Income (DTI) ratio provided that the payment is calculated solely based on the energy produced by the panels (per-kWh rate) and does not require a fixed minimum payment if no energy is produced.
As shown on Page [Insert Page #], Section [Insert Section #] of the attached PPA Agreement:
1. The homeowner pays strictly $[Insert $/kWh Rate] per kWh of metered solar electricity actually generated;
2. Delivery of theUCC-3 Subordination / Release of Fixture Filing confirming First Mortgage Lien priority is enclosed from the Title Company.
Accordingly, we request that the variable per-kWh PPA utility substitute payment be excluded from the borrower's monthly housing/debt obligations per B2-3-04.
Respectfully submitted,
[Loan Officer / Real Estate Attorney / Buyer Name]Solar PPA & Lease Exit FAQ
Can a leased solar system be included in the appraised value of my home under Fannie Mae rules?
No! Under Fannie Mae Selling Guide B2-3-04 and FHA HUD 4000.1, leased solar panels and PPA systems are third-party personal property and MUST BE GIVEN $0.00 VALUE by the real estate appraiser. Only owned solar systems (paid in cash or via a standard loan without a title lien) can add appraised value to a home.
What if the buyer still refuses to assume my solar lease?
In a buyer’s real estate market, over 60% of buyers demand that the seller either buy out the solar lease at closing out of seller proceeds or provide an escrow credit equal to 50%–100% of the remaining payments.