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Whether you’re looking to save money, avoid paying your utility so much, or keep some carbon out of the atmosphere, homeowners generate their own energy with rooftop solar. According to some estimates, 13.4% of homes will be equipped with solar panels by 2030.

While prices are steadily falling (although supply chain issues have pushed them recently), rooftop solar costs thousands of dollars, sometimes tens of thousands. Most people don’t have that kind of money, but there are plenty of options for paying for solar power.

“Funding has always been an issue,” said Roger Horowitz, director of co-ops at Solar United Neighbors, a nonprofit and advocacy group that helps people adopt solar power in 11 states. Financing solar power often requires lots of money, good credit and owning a home.

This article aims to address some of the highlights of solar financing, but it should not be taken as financial advice. For that, you’ll need to find someone more qualified to figure out if solar makes financial sense for you and how to best achieve that.

Buy solar panels with money

Arguably the easiest way to buy solar panels is with cash, and the benefits are obvious. With a cash payment, you avoid paying interest and loan fees and you don’t need a qualifying credit score. As a result, you’ll save more money over the life of your solar panels.

However, you have to shell out more money up front, so it will take some time before you get back the money you spent. This period of time is called a recovery period, and it is useful information when deciding whether paying cash is a good option for you or not. The average repayment period is eight years in the United States, and you can find help to calculate your recovery period here.

A cash purchase gives you the opportunity to take advantage of the federal solar tax credit. If your solar panels are fully installed through 2022, the US government will give you 26% of the cost reimbursed when you file your taxes. In 2023, the credit drops to 22% and will then disappear, barring new legislation.

That means you could get thousands of dollars back, but it also means you don’t get that money back until tax time.

Paying cash works best for people who have a stable cash flow and can absorb such a large one-time payment, said Grant Klein, senior dealer relations specialist at Clean Energy Credit Union.

Buy solar panels with a loan

If you can’t afford to pay it all at once, solar loans are widely available from several sources and in many forms, although a bad credit score can disqualify you.

It is increasingly common for solar power providers to offer loans, often one-third. Although these loans are easy to apply for, they may come with higher fees than options from a bank or credit union.

“The vast majority of people buying solar that we see end up using loans from their installers,” Horowitz said. He pins this apparent preference on how easy it can be to get a loan this way. However, getting multiple loan proposals (at least two, according to Horowitz) can save you a lot of money.

One of these options is a home equity loan or home equity line of credit, where you borrow against the equity in your home (which you could get by selling it minus what you owe on your mortgage). You can borrow up to 85% of this amount, according to the Federal Trade Commission.

You can claim the federal solar tax credit if you purchase solar energy using a loan, although it goes to you when you file your taxes, not when you buy your system. Still, it could be helpful in repaying the loan.

Solar loans can be secured or unsecured. A secured loan is a loan secured by collateral, such as your house or the solar panels themselves. Essentially, you’re saying the lender can sell your collateral to pay off the loan if you don’t pay it. Solar loans are most often secured by solar equipment, Klein said. Home equity loans are secured by the value of your home. Unsecured loans do not benefit from this guarantee. As a result, secured loans offer lower interest rates and longer repayment terms.

With each of these options, it’s important to shop around and compare lenders. Again, this article should not be considered financial advice.

Get help from the government to buy solar panels

Beyond the federal solar tax credit, the federal government (and sometimes your state) can help you with a few other financing options.

A Fannie Mae HomeStyle Energy Mortgage allows you to add the cost of a solar project to your new or refinanced mortgage. the Federal Housing Administration offers similar additions to mortgages. The quantity of the money you can borrow is determined based on the value of your home.

One of the benefits of an energy-efficient mortgage is that you borrow money once instead of twice. This means you only pay one set of loan costs and fees and can repay it over 30 years, instead of 10 or 15 as can be the case with other solar loans. This keeps your monthly payment low. Not all lending institutions offer loans under these programs and the borrowing process can be complicated.

“They tend to be more complicated because you have to make a lot of phone calls to reach the right people,” Horowitz said. This can place an additional burden on people with fewer financial resources, the people the program is meant to help. It’s important to work with an institution that knows how to navigate these systems, Horowitz said.

An energy-efficient mortgage can be used for other energy-efficient equipment besides solar panels such as new insulation, new windows and doors, smart thermostats, or water efficiency upgrades. Whatever the upgrade, it must be cost-effective, meaning it must save more money over its lifetime than it costs. For most places in the country, solar panels are sure to meet this requirement.

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Another option is Property Rated Clean Energy, which deserves a brief mention despite only being available to residential customers in California, Florida, and Missouri. By working with a local PACE office, you can finance your solar panels and repay the loan over a longer period through an additional charge on your taxes. In theory, this makes large purchases more affordable, although early iterations of the program actually buried some low-income homeowners in debt and the possibility of seizure. New regulations passed by state legislatures could solve this problem.

Get solar power through a lease or power purchase agreement

If buying solar power with cash or a loan is out of reach due to bad credit, lack of money, or any other reason, you still have options. Instead of buying, you can enter into a power lease or power purchase agreement with a solar power supplier. With both options, bundled as third-party owned solar, the solar provider owns the panels and you agree to pay for the equipment (via a lease) or pay for the electricity (power purchase agreement) , usually at a lower price than you pay for your utility.

CNET went into detail about power purchase agreements earlier, but briefly, here’s what you need to know.

The biggest advantages of these arrangements are that you don’t have to buy solar panels to get solar power. Usually you’ll also save money on electricity for the duration of your contract. And you won’t have to worry about panel maintenance, even if maintenance is usually not a huge burden.

Power purchase agreements generally save you less money than buying panels outright. And, depending on the price of your lease or power purchase agreement and how your payment increases over time, you could save a lot less. The federal tax credit also goes to the owner of the system, in this case the solar company.

Since these agreements typically last for 25 years, they work best if you plan on staying in your home long-term. Anecdotal reports reveal that moving to a home with third-party solar panels can be onerous and costly. What happens if you move is something you’ll want to be sure of before sticking third-party solar panels on your roof.

Also, be aware that third-party ownership of solar panels is not permitted in all states.

Which solar financing option is the best?

Sorry! I am not giving financial advice here. Before making a decision, make sure you get the advice you need from a qualified person, get several offers on solar projects or loans, and be sure to read all the fine print.

Are there financing options that I have overlooked? Others that interest you? Have you financed solar panels in a way that has worked perfectly for you? Reach out to me via comments and let me know.

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