Solar panels for your home are a great long-term investment, but the upfront costs can be intimidating. You may be wondering, “Can I afford solar?”. In this article, we are going to cover various financing options available as well as the tax breaks, incentives, and rewards on offer – essentially, how to finance solar panels. First, let’s look at why solar panels are a good investment and what they cost on average.
Benefits of Solar Panels
Great Return on Investment
Clearly, the number one reason to install solar panels would be to lower your electrical bills. In some cases, you could go off the grid completely, but even if you don’t, your bills will be significantly lower. Cost of Solar reported that investing in solar had a better ROI than a 30-year treasury bond in ⅔ of the states. Furthermore, they found that solar earned homeowners back their money in 49 out of 50 states. If you’d like to find out how much you can save in the long run, Google has a great tool that will calculate your savings over the next 20 years.
Raises the value of your property
Installing solar power in your house will significantly increase the value of your property. This is always good news when you might look to sell at some point in the future. Note that the demand for properties with solar power is also on the increase.
Protect the environment
Last, but certainly not least, solar energy helps cut down on the need for other resources to produce energy (for instance, energy generated from a coal-fired power station). This means your home’s carbon footprint is significantly reduced. In the U.S., buildings contribute 38% of all carbon emissions. By installing a solar system in your home, you are reducing your carbon emissions by the equivalent of planting 100 trees per year.
So solar panels bring with them many benefits, but how much do they cost?
Solar Panel Cost
Average Cost of Solar Panels
There are many ways to try and calculate the cost of a watt when you are using solar power. In fact, the internet is filled with solar panel cost calculators, not all of which are very accurate.
As a general overview, you can work with the following figures – you can expect around $3 per watt for the solar panels and $3 per watt for the installation. An average-sized home in the U.S. will require a 5kW solar power system to provide it with the 1kW per hour it requires. Based on figures from the Solar Power Authority, installing a 5kW system costs in the ballpark of $25,000 to $30,000.
Before clicking away thinking you can’t afford it, check out your options for financing the panels followed by the different ways you can reduce the cost at the outset.
Unsecured loans differ from home equity loans because no form of collateral is necessary. Here, you will be approved solely based on a few important factors including your credit rating as well as monthly income and expenditures. Let’s look at a few providers.
SoFI specializes in low-interest loans for borrowers with good credit. They offer terms of three, five, and seven years with no origination fees at all. SoFi offers some of the most competitive rates on the market.
LendingClub was the first publicly traded company of this type in the United States. The application process is easy. You fill out a short questionnaire to find out what you qualify for, then investors will send you loan offers to choose from. Simple as that!
LightStream is the online lending division of SunTrust Banks and provides a range of loans including unsecured options. They offer amounts from $5,000 to $100,000 at great interest rates vary depending on your credit. Their rates are competitive, and their application process is easy. You can apply, get approved, and get the funds within the same day.
Home Equity Loans
A home equity loan lets you use your home as collateral to borrow an amount of money. A lien against your home is created by the lender which then reduces its equity. If the loan is structured correctly, the savings you make on electricity can be used to pay the monthly installments.
Home equity loan interest rates vary from 3.5% to 7.5%, and they generally run from 7 to 20 years. In some cases, interest may be tax deductible. Let’s take a look at a few home equity loan options.
Home equity loans from Banner Bank can be secured against one to four family unit properties. The loan can be used for many purposes which include installing a solar energy solution. Note that in some cases, interest is tax deductible. Once approved, there are several ways to make use of the credit including credit line checks, a specific Home Equity Rewards credit card, transferring funds online, or making a transfer request by phone. Furthermore, interest rates can be fixed as a way to protect you against rate increases for a period of either five or ten years.
With over 30 years’ experience as a stand-alone mortgage bank, AmeriFirst offers excellent home equity loans. These can be paid in a lump sum or as a revolving home equity line of credit which gives you access to money when and where you need it.
FHA Home Improvement Loans
Next up are FHA Home Improvement Loans. These are offered by the Federal Housing Administration (FHA) together with the Department of Housing and Urban Development. They can be used by homeowners for home repairs, structural improvements, as well as alterations.
Of course, the loans are only given to homeowners that meet eligibility requirements. These are often used by investors, first-time home buyers, and people suffering from credit issues who want to make their home livable, safe, and more energy efficient.
The Property Assessed Clean Energy (PACE) program is another option to fund a solar energy system. It allows either local governments, state government, and other authorities to be authorized by state law to pay for energy improvements on both residential and commercial properties. This is then paid back over a certain number of years by the owners of those properties.; normally a 10 or 20-year period.
Non-payment is treated in the same way as if you had not paid other portions relating to the tax bill of your property. Note, the debt from a PACE agreement is attached to the property and not the owner of the property. This means it transfers with a change of ownership.
Incentives, Tax Breaks, and Rebates
Now you know the many options you have to pay for solar panels, but let’s look at how to reduce the amount you’ll have to finance.
State tax credits
Many of the states in the U.S. will give tax credits when you install a solar power system. This allows you to take off a part of the costs from your state tax bill. The amount is not fixed and changes from state to state. Check rebates for your state here.
In some states, as well as with some local municipalities and utility companies, cash rebates are possible. These are only available for a short time after the installation has taken place. Make sure you ask if any are available when you install your system as they can also help to reduce costs by another 10 to 20 percent in some cases.
A solar renewable energy certificate, or SREC, is awarded in certain states when a certified and registered solar system produces 1 kWh of electricity. Utility companies are required to purchase a certain amount of SRECs each year to prove they are meeting sustainability standards. As a result, you can sell these to help with the financing of solar technology and to increase the return on investment. Learn more here.
This is of particular interest to business owners as accelerated depreciation can be used in their favor by writing off the overall value of their installed solar energy system using a Modified Accelerated Cost Recovery System (MACRS). This speeds up returns on your solar investment and lowers the tax burden on the company significantly. Qualified solar energy systems can net a cost recovery for five years. An additional 30 percent net system cost can be achieved through accelerated depreciation.
Many municipalities and states do not increase property taxes when you install a solar energy system even though it raises the value of the property. In some states, the solar energy system may also be free of state sales tax, which results in even more savings. Learn more about tax exemptions.
Find Your Solar Financing Today
No need to worry about the upfront costs of solar. With all of the rebates and incentives available, along with the numerous financing options to choose from, getting set up is simply a matter of finding the right fit for you. If you are having trouble deciding, be sure to visit our personal loans page to help you compare and review the different loan providers before making your choice.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.