5 Ways to Finance a Solar Installation on Your Home

According to the solar company EnergySage, the average cost for solar panels on a home ranged from $10,045 to $13,475 (after tax credits) in 2017. This number can be a lot higher, depending on the size of your house and the system you install. It also can vary greatly depending on where you live. A solar system will work much better in Phoenix, for example, than in Seattle, based purely on the average amount of sunshine. And sunshine is what makes solar panels work!

Solar Power Authority puts the cost higher for a 5kW system– what they determine as an average system size for a standard family home. How much do these systems cost? $25,000 to $30,000.

Either way, solar panels are a pretty hefty investment. So, for many families who want solar installed on their home, it makes sense to take out a loan.

Many different types of institutions offer solar loans, including traditional banks, solar panel manufacturers, credit unions, national lending institutions, public-private partnerships, utilities, and municipalities.

Most solar installers work directly with solar lenders. This makes it convenient to finance through them but it doesn’t always mean you’re getting the best prices. It’s always a good idea to shop around at the different institutions to find the solar loan that’s best for you and your situation.”

Let’s take a more in-depth look at some of the available options.

1. Government programs

Many states offer financing help to homeowners through government programs, such as Property Assessed Clean Energy (PACE). PACE is a means of financing energy efficiency upgrades or renewable energy installations (such as solar panels) for residential property owners. These loans are authorized by the government but typically funded by private loans.

How it works: PACE programs help homeowners pay for the upfront costs of green initiatives, such as solar panels. The property owner then pays the loan back in extra property taxes, a set rate for an agreed upon term ranging from 5–25 years.

Pros

  • Homeowners can reap the benefits of energy savings while paying for their solar panels. Often, this means net gains despite increased property tax.
Cons

2. Get a loan from a specialty lender

How it works: Find a lender that specifically finances home improvement loans and see what they offer in terms of rates and repayment terms.

Enerbank is a lender specializing in home improvement loans. Founded June 1, 2002, and headquartered in Salt Lake City, the company provides unsecured home improvement loans through strategic business partners such as manufacturers, distributors,  franchisors, and major retailers of home improvement, remodeling, and energy saving products and services.

The bank’s executive VP of sales and marketing, John Harris, says that Enerbank is the only Member-FDIC bank that exclusively does home improvement loans. “Being a specialized bank means we understand the home improvement business, including solar, and how to make the lending experience as smooth as possible for homeowners and solar contractors they work with.”

Other lenders that offer home improvement loans, but not exclusively, include Prosper, LendingClub, One Main, Lightstream and more.

 

Pros

  • If you work with a company that specializes in this type of loan, the experience may be smoother.
  • Competitive rates
Cons

  • Limiting yourself to this specific type of loan may not get you the best rates and terms. Shop around all options before deciding.

3. Work directly with the solar contractor

How it works: Solar contractors often have a relationship with a bank such as EnerBank or other lenders specializing in home improvement loans and can help homeowners facilitate the process of getting a loan. Harris says, “Examples of payment options may include a Same-As-Cash loan, reduced interest loan (RIL), or traditional installment loan (TIL) — or even a combination loan with a re-amortization option.”

Pros

  • The process will be simplified because you’ll be getting your loan through your contractor.
Cons

  • If you don’t cast your net wider when seeking lending options, you may not get a good deal.
  • Solar companies only stand to benefit from you getting a loan to install their system, so they may not consider the best options for you and your financial situation.

4. Lease solar panels instead of buying them

How it works: Go with a company that leases the panels. The company will install the solar panels, maintain them, and keep the government subsidies. You’ll pay a monthly leasing price, which varies depending on the size of your home and installation, but it’s typically less that you pay for your electric or gas bill.

Pros

  • You don’t have to worry about getting a loan at all. Also, you don’t need to calculate all of the incentives and tax rebates. The company does that.
Cons

  • Owning the solar panels can be cheaper in the long run.

“The most obvious advantage is that owned solar panels increase the value of your home and make it easier to sell,” says Harris. “Another reason is that owning is really not that hard since you don’t have to have perfect credit to get a loan for solar panels. There’s no prepayment penalty, so you can pay them off sooner than later if you prefer. And finally, if you buy the panels, you can claim the federal tax credit.” He suggests consulting a tax professional for advice on doing that.

5. Take out a home equity loan

How it works: You use the equity in your home to pay for a solar installation. First, check out how much equity is available and what the terms of a home equity loan would be. Since this type of loan is backed by collateral (your home), your credit won’t be as important as it would be for another type of loan.

Pros

  • Spending the equity in your home on home improvement is a good way to raise the value of your house.
Cons

  • You must have sufficient equity in your home to qualify for this kind of loan. The Federal Trade Commission says you may be able to borrow up to 85% of the appraised value of your home, minus the amount you owe on your first mortgage.
  • If you default on this type of loan, you risk losing your house.

Get started!

Solar panels are a smart long-term investment and good for the planet, as well. Look into the options above and start your journey to clean, sustainable energy.

Read reviews of personal loans and get more advice on financing home improvement at Supermoney.

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