With the rising cost of electricity from traditional sources, solar installations can seem like a no-brainer for many homeowners today. Today’s solar panel systems are becoming more efficient and less expensive, so they’re almost certain to save you money, but how much you can save will depend on several key factors.
Though installing a solar system comes with an upfront cost (the Center for Sustainable Energy reports that the cost of installing and using a solar system can range between $15,000 and $25,000, on average), thanks to government incentives and financing options, many homeowners find their monthly payments are lower than their previous energy bills.
How much money can you save by going solar?
If you are wondering if installing solar panels can actually save you money, be assured the answer is definitely “yes”. It is important to note, however, that how much you’ll save will depend on a variety of factors.
The amount of sun that hits your roof directly and the angle at which it faces can both affect how much solar can save, but your local electric rates are the most important factor.
Tax benefits of solar panels
Solar panels will not only save you money on electricity over time, but the federal solar tax credit can reduce your upfront costs by up to 26 percent, the amount of the credit that is currently available. Or, to put it another way, every $10,000 you spend on solar could earn you a federal tax credit of up to $2,600.
Different Types of Solar Financing Options
When it comes to securing financing for solar panels, there are quite a few options to choose from. Here are a few of the most popular ways that homeowners are financing solar panels.
Unsecured Personal Loans
It is possible to get a loan for installing solar panels on your house without having to put a lien on it. This is known as an unsecured solar loan. There is less penalty for defaulting on the loan since they don’t require collateral, so they cannot foreclose on your house if you default.
The disadvantages of unsecured loans, however, are that they come at a price: being a riskier option for lenders than secured loans, unsecured loans often come with higher interest rates.
Secured Personal Loans
If banks are unwilling to give you an unsecured personal loan due to your credit history or some other reason, a secured personal loan is another option.
A secured personal loan is one where you borrow money from a banking institution that is backed by collateral like a home or car. If you default on the loan, the bank can then repossess the property to cover the loan.
What credit score do I need to get a personal loan for solar panels?
Is there a minimum credit score for a personal loan for solar panels? Personal loans are available for individuals with varying credit scores, depending on the lender. You will generally have to have a credit score of at least 550 in order to get approved for the loan.
You will be more likely to be approved if you obtain a higher score, and you can also expect to receive a lower interest rate.
Home equity loans and HELOCs
You will be required to pledge an asset as collateral for your solar loan if it is a secured loan. It would typically be your house. Essentially, you are providing “security” to the lender in case you are unable to pay back the loan. In this situation, the lender has a lien on your property if you default on your payments, which allows them to seize it in order to recover the loan amount.
FHA and Fannie Mae loans
In recent years, Federal Housing Administration (FHA) has made it easier for families to finance the installation of solar energy systems on their homes. A standard FHA-insured mortgage can be prepared to include the full cost of a new solar photovoltaic (PV) array at the time of the purchase or refinance of the home.
Third-party lenders are sometimes used by solar companies to finance their projects. Loans of this type are usually unsecured and do not require a down payment. You may find that the payment plans have lower rates than personal loans and longer repayment terms, which allow you to pay less each month.
Refinancing your loan with cash out allows you to get a lower rate on your mortgage which includes the cost of solar panels and installation. Generally, it makes sense to do this if the current interest rate for your mortgage is lower than what you currently pay and if closing costs can be kept low.
The costs of closing a cash-out refinance range from 2% to 5% of the loan’s cost. For example, closing costs for a $250,000 mortgage can be nearly equal to the price of some solar panels – which is close to the cost of the solar panels.
Power Purchase Agreements or Leasing
A power purchase agreement or leasing solar panels can be an attractive option if you are not eligible for federal or state tax credits or are inclined not to make a large upfront payment.
You essentially rent the solar panels in both cases, with little or no upfront payments. You pay rent to the owner of the panels, and the government provides tax incentives for using the panels. Additionally, you typically don’t have to worry about the maintenance of the solar panels you are leasing.
Apply For Solar Panel Financing Today
Assuming you’ve already calculated your home’s sun exposure, the cost, and the savings involved with installing a solar panel system at home, you should begin researching the local companies and contractors you can work with to get the installation started.
SolvingSolar has a wealth of resources and can put you in touch with a reputable, affordable contractor in your area to get your system installed as soon as possible. If you’re interested in applying for solar panel financing today, click here to get started.