It’s very exciting that you have a set a course to install solar panels and in doing so will be increasing the value of your home and saving on your utility bills. And while your conversations with your contractor are exciting, it’s important to find time to look at the numbers and complete the process of budgeting your solar project.
Creating a budget for a relatively costly home improvement project like solar panel installation can seem intimidating — you’re in the right place to find guidance on how to best manage and create a budget for your investment in your home. There are simple paths you can take to simplify and ease your journey.
Budgeting for Solar Panels
Most importantly, remember the ball is in your court. The cost of solar installation has dropped more than 70 percent since 2010, according to data from Solar Energy Industries Association. In response, therefore, contractors have stepped up their game to compete in an increasingly saturated arena. Further, it’s okay to expect the contractor to handle the bulk of the work in reducing costs before your solar installation project even begins—after all, one of their value propositions is expertise in the field and local knowledge about getting the most out of local, state, and federal rebates and incentives.
That all amounts to a big leg up.
At Modernize, we frequently speak to homeowners about their home improvement projects. Budgeting your project is stressful and we get that: The first step is to be sure you can afford this system you’re planning to install, based on factors like your cash flow, your assets, and what the return will be on your investment.
Enter the budget.
Calculating What You Can Afford
Some solar panel system installation projects could cost nothing at all. You could increase your home value with solar without buying a solar panel system at all. But considering the many financial incentives offered by local, regional, and federal agencies, it could also be lucrative to finance your own solar paneling system.
Calculate your income and your expenses, your needs and your wants, and find the figure of money you could theoretically put aside for an investment in your home. Your experienced contractor is one of your most important initial sources on how to best determine what that investment should look like from outside your personal goals—be sure to consult them for that piece of the pie but remember this is your project (and your money) so it’s okay to be a little selfish and somewhat frugal to achieve your ends.
What Is Your Home Equity?
If and when you decide to finance your own solar paneling, your home equity could play a pivotal role in everything from your loan amount to your interest rate. Simply put, your equity is the difference between what you owe on your home or property and the appraised (or market) value determined for it.
The more of your mortgage you’ve already paid, for example, the higher your equity in the given property. And the more equity you hold in your home, the more powerful you are as a borrower, especially when it comes to purchasing power, or the financial ability to buy (or purchase) things.
What Is Your Credit Rating?
From your credit score to your existing savings, purchasing power, and other ongoing loans, various financial institutions will have slightly different scales by which to determine your eligibility for a home improvement loan. And while some programs are certainly designed to be on your side—like the HomeStyle Energy Program or the Title I Property Improvement Loan—you’re going to be paying back in some way.
One of the most significant markers of your financial health—as determined by financial institutions, anyway—is your credit score. Plainly put, a credit score is “predicts how likely you are to pay back a loan on time,” according to the Consumer Financial Protection Bureau. Companies us proprietary scoring models to calculate your credit score using information from your credit reports, which essentially break down your “credit activity and current credit situation, such as loan paying history and the status of your credit accounts.”
Knowing your credit rating and how you’ll be considered as a borrower will go a long way in helping you determine how much you can afford as you budget for solar panels.
Be Real About Your Solar Panel Needs
When surveying homeowners, we often hear that ahead of a solar power home improvement project, people are often misinformed about how to determine the right amount of solar panels for their home.
You likely already have a solid idea of what this project will entail based on what your contractor has shared with you. And while their goals might be completely in your favor and aim to maximize the amount of solar power you could bring in, they might not necessarily align with your personal goals. Be sure to communicate your own priorities with your contractor.
It all comes down to trusting a contractor—and that also means a contractor trusting you. The more upfront you are about what you want to do and your financial limits, the better a contractor will be able to hone in on the best type of budget to build for your solar panel installation. It might not result in the pie-in-the-sky solar panel home improvement you dreamed of, but it will result in the best value you’ll get for the money you’re able to invest.