Solar loans: Financing for solar energy and solar panels
Help save the earth with solar energy — and save money at the same time.
While you may not be able to commit to an entire solar roof from Tesla, solar panels could still be a great investment. The world is slowly moving towards renewable energy, and there are incredible benefits to supporting that move, both financially and environmentally. You have multiple options when it comes to financing solar panels for your home.
How can I finance solar panels?
Solar projects are typically funded one of several ways, depending on what you’re looking to get out of your new energy source. But these can be chunked into two categories: leasing and buying.
- Leasing. Leasing solar panels means that you never actually own the equipment, but you may not have to put any money down for it or maintain it.
- Buying. Buying the system generally requires that you put down money upfront, but you are also afforded flexibility when it comes to what you’re buying and what happens if you sell your home.
To buy a solar panel system outright, you’ll likely need financing. Luckily, there are other options.
PACE Government Financing
Your state or local government may offer residential Property Assessed Clean Energy (R-PACE) financing in your area. R-PACE financing is an opt-in program that allows homeowners to participate in an upgrade of their property via tax-assessment. In short, the cost of the improvement is paid via an increase in property tax over an extended period — usually between 10 and 20 years.
The improvements made to a house under the R-PACE program stay with the house — which is to say if you move, the solar panel system that was installed won’t be moving with you. It also means the debt won’t necessarily move with you either, as it’s a debt of the property and not the owner.
Title I home improvement loan
Also known as a “no-equity home loan” this type of financing is done through the federal government. You might like this options because you don’t need to have home equity built up and it comes with competitive fixed interest rates. You might not like this option is you want to borrow more than $25,000 or want to get your loan quickly. Title I home improvement loans could take around one to two months to process.
A general purpose personal loan can be an effective option here if you have the credit history to back them up. Solar panels can be pricey, and personal loan rates and terms may not cut it unless you have excellent credit. Be sure to consider the offer’s monthly payments against what you’re able to afford in addition to your other expenses.
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Home equity loan
A loan that’s backed by the amount that you own your home. In other words: What you’ve paid off so far on your mortgage is used as collateral. This is a viable option because you could possibly borrow 80% to 90% of your home’s value. The downside if you must have that equity built up beforehand.
Home equity line of credit
Similar to a home equity loan, a home equity line of credit is also a loan but acts as a revolving line of credit, allowing you to draw against the equity in your home as you need it. You don’t have to spend it all at once and as long as you pay it back according to the terms, you can keep drawing from it for a longer period of time, often five to 10 years.
How much does a solar energy project cost?
Your cost will vary based on the company you purchase through, your location, the size of the system that you get and your loan’s interest rate. On average, a complete residential system can cost anywhere from $25,000 to $35,000 with installation. This doesn’t factor in tax credit savings or what you could save with your new solar panels generating some or all of your electricity.
- Installation costs run between $5,900 and $36,000 based on the size of your system and your location.
- Panel costs vary based on type and range from $0.70 to $1.50 per watt.
- Labor costs average at $0.50 per watt. For full systems, that ranges from $1,000 to $5,000.
- A DIY system costs between $4,000 and $27,000 depending on the size of the system.
- Mount costs run from $10 to $3,000 per unit depending on if you choose a fixed, adjustable or tracking fixture.
Average cost for a 6 kW system after federal tax credit:
|Northwest||$12,800 to $19,700|
|West||$13,700 to $17,500|
|Southwest||$10,900 to $16,300|
|Midwest||$11,900 to $17,200|
|Southeast||$10,800 to $17,400|
|Northeast||$12,400 to $19,200|
How can I get a return on my investment in solar panels
- Find out how well your house is suited for solar energy. Climate, roof pitch and facing will make a difference in how efficient your system is.
- Research the companies that you’re thinking of buying from. Ask if installation is done in-house, look at reviews from other customers and find out if there’s any kind of warranty.
- Maintain your panels properly. Follow the manufacturer’s recommendations for cleaning and maintenance. Some companies include a maintenance plan with their products, while others will cost you out of pocket. Without a warranty, you’re looking at about $80 annually for a solar panel system that lasts 25 years.
- Consider the value it may add to your property. More people are looking to invest in renewable energy and cut their electricity costs, which leads to buyers who will pay more for homes that are already equipped with solar technology.
Potential savings with a solar energy system
Here’s a look at the projected annual savings for a 5 kW system over selected states in different regions.
|State||Estimated annual savings on electricity|
Solar energy system tax credits
The federal solar tax credit or investment tax credit (ITC) is 30% of the cost of installing a solar energy system through 2019. Past 2019, the ITC drops to 26% in 2020, 22% in 2021 and finally 10% from 2022 onwards.
States offer several types of incentives including: performance-based incentives (PBIs), solar renewable energy certificates (SRECs), state tax credits and cash rebates.
Some examples of state tax credits include:
- Arizona has a 25% tax credit with a maximum of $1,000 per residence.
- Oregon has an incentive of $0.60 per kWh (kilowatt hour) saved and $2.00 per kWh saved incentive for space heating or cooling and hot water heating, respectively, with a maximum incentive of $1,500 per year.
- New York offers a 25% tax credit with a maximum of $5,000. Systems must be under 25 kW to qualify, with the exception of 50 kW systems owned by condos or cooperative housing associations.
- Massachusetts supplies a 15% tax credit with a $1,000 maximum per residence for solar water and space heat and for solar photovolatics.
Solar power can be a great investment for your home and for the environment. Tax credits, reducing your reliance on the utility and potentially selling back to it can all lessen the financial burden if you’re able to make the initial plunge.
Your best funding option will depend on what you want out of your new system, how much equity you have in your home and how long you want to repay the loan. Carefully consider your needs and compare your loan options before committing.
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