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Solar Resources

A Solar Panel Financing Checklist for Homeowners

A solar panel installation is an exciting and enticing opportunity for many homeowners — but at the same time, many have questions about how they will finance the solar panels. As we learn more about our carbon footprint, solar power has grown year over year in popularity and led to a dramatic decrease in price. In the last decade, the cost of solar has dropped 70 percent! It also helps that there are a plethora of rebates, incentives and tax credits to support homeowners who want to go solar.

If you have been considering installing solar panels in your home, there are considerations to take into account in order to decide if they are right for you. We’ve broken this all down to help navigate homeowners through the solar power process.

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Questions To Ask Before Financing a Solar Project

There are several questions to address before determining how to best finance a solar panel project. Before planning the installation, make sure to ask the right questions about your home’s compatibility with solar power:

Is my roof suited for solar panels?

Roofs need to be in good shape before installing solar panels. They need to be able to support the solar panels as well as solar panel mounts. If you’re due for a roof replacement or repair, it’s best to hold of on solar panels until this is taken care of. Also, find out the pitch of your roof, the direction it’s facing, and whether there are any obstructions (like chimneys) that may get in the way of the panels or sunlight.

What code issues might I run into?

Find out if your city has permit or code ordinances surrounding solar panels. Most cities require permits for solar panel installations, however, there might be more installation requirements you are not aware of. The fire department may require them to be installed a certain way, or there may be structural requirements. An experienced contractor should be aware of these code and permit requirements and assist you on how to go about your project accordingly.

Can I afford solar?

Even though the cost of solar is dropping every year, putting yourself in a financial bind can eliminate the benefits! Energy Sage has a helpful calculator to get an idea of what the cost would be in your area.

Keep in mind that there are additional cost considerations beyond the cost of the solar installation. For instance, it’s worth exploring the soft costs involved with solar as well as your estimated return on investment. Although you would be investing in solar panels now upfront, your investment may earn you even more money than you paid in utility savings.

Also, if you don’t want to purchase the solar panels outright, there are leasing options for homeowners.

Is it worth going solar?

Whether financing solar panels is worth it or not largely depends on the potential savings you will see over time for electricity costs. Homeowners who live in areas with higher energy and utility bills are going to benefit the most from installing a solar panel system.

Before coming up with a plan to finance your solar panel project, take a look at what you are spending on electricity each month. Then, compare it to the estimated savings you can expect by switching to solar (and how long to pay off the panels in the first place).

Homeowner Options for Financing Solar Panels

Thankfully, homeowners interested in installing solar panels in their homes have many options to pay for it. Not only are solar financing options helpful in finding a way to pay for the investment, but they can also save you money. Consider the following solar financing options — and keep in mind that a combination of the following may be the answer, too!

Credit cards

It may seem obvious, but simplest way to finance the solar panel project is to put it on your credit card. This may be beneficial if you have a credit card that has a significant credit line and offers rewards and cash back. However, like many other major purchases, be sure that this is a cost that you can pay back in a timely manner to avoid a build-up of interest. 

Loans

Homeowners with a good credit score and financial history can benefit from taking out a private loan. By installing a solar panel system, you will increase the value of your home, which if the cost is right, will make the loan worth it. It’s a matter of balancing the numbers to ensure that it makes sense. For instance, if you plan to resell your home soon, the loan may pay for itself in a timely manner once the house is sold (at a higher cost than you bought it for!).

Government incentives

In an effort to encourage more homeowners to install solar panels, the federal government offers credits, rebates and other incentives. This includes the Residential Renewable Energy Tax Credit, which applies to up to 26 percent of your installation (this will decrease to 22 percent in 2023).

Different states and even municipalities are offering tax credits and performance-based incentives for homeowners. For example, in California, the city of Rancho Mirage will provide a $500 rebate for the permit fee, and Los Angeles and San Diego participate in net metering. Look out for rebates and incentives in your area in order to make financing your solar panels worth it.

Federal housing loans

If a loan is a better option for you financially, the Department of Housing and Urban Development (HUD) offers private loans for home improvement projects, insuring them up to $25,000.

Going through a government agency will provide lower interest rates than you would get going through a bank. If the loan is greater than $7,500, it’s a requirement that it “must be secured by a mortgage or deed of trust on the property.” This means you’ll be borrowing against the value of your existing equity.

A caveat: The home must be older than three months old and occupied for longer than three months.

Which is the Best Solar Financing Option?

The best solar panel financing option varies from homeowner to homeowner. Factors to consider when deciding on a solar financing option that works for you include:

  • Your credit score
  • Your financial situation
  • Rebates and credits offered in your state
  • Whether you qualify for different loans
  • The interest rate(s) of available loans

A trusted financial adviser or solar professional can be helpful in guiding you on what financial decision to make when it comes time to pay for your solar panels.

Lease or buy?

If you want to go solar but aren’t ready to make the full commitment, there’s the option of leasing solar panels. When leasing, the homeowner does not own the solar panels and is not typically responsible for the upkeep, maintenance or even installation.

Usually, under a solar lease agreement, the homeowner pays a third party to purchase the energy generated at a lower cost. The incentives and rebates that we discussed earlier would not be applicable with leasing, but the ability to take advantage of solar energy at a much lower cost is worth it to many homeowners.

Power Purchase Agreements (PPA)

There is also something called a power purchase agreement (PPA) available to homeowners who are considering a solar project. Similar to a solar panel lease agreement, a PPA allows homeowners to pay a third party to install solar panels at their home. Installation costs and maintenance are the responsibility of the third party.

However, different from a solar panel lease, PPA’s give homeowners the option to purchase the solar panels after the agreement is up. A PPA usually lasts 20-25 years, but they typically include a clause that allows homeowners to purchase the solar panels at any time. Similar to a “lease to own” agreement, this is a viable option for those who are not sure about financing the solar panel system right now, but may want the option down the road.

How to Find the Best Solar Panel Installation Price

You may have an idea of how much solar panels may cost you, but you won’t know the real numbers until you start talking to contractors. Reach out to friends and family if they have had solar panels installed for recommendations, as well as Modernize’s network of contractors. Gather quotes from a number of people— they should all be around the same range, and a quote that is significantly higher or lower than the rest should be cause for alarm. The contract you choose should be experienced, reliable, knowledgeable, and someone that you feel comfortable working with.

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