Not long ago, two financial barriers prevented most households from going solar — even if they were ready to make the switch:
- The high price tag on solar arrays
- The lack of solar financing options available on the market
Thankfully, innovations in solar technology have made going solar more affordable than ever. In fact, the National Renewable Energy Lab estimates that the average price of a residential solar system has dropped by 64% in the last decade! All the while, solar technology has become more sophisticated. As a result, sites that were previously unsuitable for solar (such as east/west roofs or partially shaded areas) can now take advantage of the sun’s abundant energy.
Solar financing options have kept pace with the industry’s technological changes. Beyond traditional financing options (such as home equity loans), clients can now borrow from solar lenders that specialize in financing solar systems. These solar lenders have terms that eliminate the need for significant home equity or upfront cash when purchasing a solar system.
In short, clean, affordable solar energy is now more accessible than ever before.
This article covers the most common solar financing options on the market, so you can decide which one will meet your unique financial needs. But first, let’s review why owning your array is so important in the first place.
Benefits of purchasing your solar array
Regardless of how you pay for it, owning your solar system maximizes your return on investment in both the short and long term.
In addition to boosting the value of your home right away, owning your solar system allows you to take advantage of the federal solar energy income tax credit during the next tax season. If you have taxable income, this credit will provide a dollar-for-dollar reduction in your federal income taxes equal to 26% of the total cost of your solar system — often amounting to a significant tax refund.
- Tax credit example: If your solar system costs $30,000, you will receive a $7,800 tax credit the following year. This credit can be paid out in a lump sum (as a tax refund) or spread over multiple years to maximize your tax advantage.
In the long term, your system only becomes more valuable as it produces more free energy for your home. Rather than paying a revolving (and unpredictable) bill to your utility provider each month, owning your system allows you to make fixed monthly payments with guaranteed returns.
Other options for going solar (such as leasing a solar system or entering a power purchase agreement) might appear to save you money at first, but in reality, these arrangements just trade one utility bill for another. When you enter these agreements, the value of your home does not increase; in fact, the lease could be seen as an encumbrance by potential buyers if you attempt to sell your home. Additionally, you are not eligible for the federal solar tax credit, and any long-term gains from your system are diverted to your solar provider. Financially, these options just don’t stack up to the benefits of ownership.
Now that you know why it’s important to own your own solar array, let’s dive into how you can pay for it.
Traditional Solar Financing Options
Traditional solar financing options include home equity loans (HELOANs) and home equity lines of credit (HELOCs). To qualify for a HELOAN or HELOC, you’ll typically need at least 20% equity in your home, but specific requirements will vary from bank to bank.
Home equity loans are the most popular form of traditional solar financing. HELOANs are secured by your home equity, often resulting in lower rates than other types of loans. HELOANs function legally as a second mortgage, resulting in a lien on your home. These loans have fixed payments and a fixed rate, but you can lower your monthly payments if you re-amortize using the money from your federal tax credit refund. Doing so, however, means you will essentially be paying interest on the amount of your tax credit until you re-amortize.
Home equity lines of credit are similar to home equity loans, but they offer more flexibility regarding when and how much you borrow. Rather than borrowing a single lump sum of money, a HELOC allows you to freely borrow against your home equity over a length of time known as the draw period (typically 5-10 years).If you anticipate other major expenses during the payoff period of your solar array (e.g. other home improvement projects, education expenses, etc.), it may make sense for you to open up this flexible line of credit. Unlike HELOANs, HELOCs have variable interest rates, potentially making them more expensive depending on market factors.
Approval for both HELOANs and HELOCs takes about 2-4 weeks. The application process can be complex, often requiring:
- A valuation of your property
- A copy of your property deed
- A copy of your mortgage statement
- Income verification documents, such as pay stubs or tax returns
New Solar Financing Options
Until recently, traditional financing was the only option for households looking to go solar. Now, homeowners have a range of solar financing options to choose from thanks to the recent growth in solar loan programs.
Solar loans do not require home equity, making them a more flexible and accessible option when financing your solar array. Solar loans are available from both traditional local credit unions and solar-specific lenders.
Local credit unions
Many local credit unions have created unsecured solar loan programs designed around the unique tax credits involved with solar system purchases. These loans often start with low monthly payments with the expectation that you will apply your federal tax credit to your outstanding balance within 12-18 months. If you do not apply your full tax credit within this period, your monthly payments will increase.
These solar loans tend to have higher interest rates because they are unsecured, but they may be a good option if you don’t have the home equity for traditional financing. Bear in mind, these traditional lenders may require a lengthy application, and the credit check will likely appear on your credit report. Additionally, your solar installer cannot adapt the terms of these loans to meet your financial goals.
Solar loans from solar-specific lenders are very similar to those of local credit unions, but they tend to have a few special advantages. First, these loans are secured by the value of your solar system itself, allowing for lower rates than unsecured loans. This option is great for buyers without home equity to borrow against, but buyers with home equity may also prefer this option because it does not put a lien on their property like traditional financing would.
Moreover, solar-specific lenders have instant access to all the details about your new solar system, so they can typically approve you for financing in minutes, sometimes only requiring a “soft” credit check. This can save you days or weeks of waiting for approval compared to a traditional lender.
Finally, because these loans are facilitated through your solar installer, they can adapt the terms of your loan to your unique needs. For example, if you don’t want to apply your federal tax credit to your solar loan (or you’d prefer to spread your refund out over multiple years), you can design your loan to avoid the standard payment increase that most lenders would apply after 12-18 months. This is just one example of how you can customize your solar financing, but the flexibility of these loans means most clients can design a payment plan that works well for their goals and budget.
Going Solar with Same Sun Has Never Been This Easy
Solar arrays are not one-size-fits-all — solar financing shouldn’t be, either. At Same Sun of Vermont, we only design customized solar arrays made with the highest quality materials available. Now, through our recent partnership with industry-leading solar lenders, we can also design customized solar financing packages that meet your unique goals.
If you’re ready to go solar with us, we’ve sweetened the deal this month with a special offer to celebrate our 10th year in business: Go solar with Same Sun this April and receive $1,000 off your custom solar array! To get started, give us a call at 802-775-7900, send us an email at firstname.lastname@example.org or Contact Us through this site.