The Best Payment Options for Residential Solar
Most homeowners already know about the benefits to going solar. The great news is that it’s actually pretty easy to obtain the funds you need to pay for solar for your home, even with no money down. Here’s a look at some of the ins and outs of the payment options available.
To Buy or Not to Buy…
These last few years, the market has proven to be a wild ride. So as a savvy homeowner considering solar in 2024, the first thing to consider is whether you want to buy or lease your solar system. A homeowner can choose to:
- buy their system upfront
- get a loan and make payments just like a car or mortgage, or
- obtain a third-party-owned system through a lease or power purchase agreement
There are pros and cons to each scenario, so make sure you know how it will work for your situation. Because there are several unique reasons any homeowner might go with any of these payment options, depending on the resources available, it’s time to take stock of a few key determining factors.
- Do you have cash in savings, or perhaps thinking of a home equity line of credit?
- Are you willing to take on current interest rates? How’s your credit score?
- And ultimately, how involved or attached to the solar system do you want to be, years down the road?
Cold Hard Cash
The most obvious way to deal with upfront solar costs is to make a direct payment. There are some immediate financial benefits, including the 30% federal tax credit and rebates that many utilities provide. Homeowners paying off the system in full will benefit from increased home value without recurring monthly payments or interest. You gain full control of your energy, using it in your home directly or stored in batteries, or sold back to the utility through Net Metering.
Here at ESP, we offer several ways to pay cash:
- An ACH transfer from your bank
- Credit Card authorization (that’s a lot of points earned!)
- Paykeeper, a simple and secure Escrow account that pays out as the project reaches specific progress milestones
Several studies confirm that solar homes are valued higher, and in California, each kilowatt (kW) of solar could add over $5,000 to a home’s value, so buying is often a smart choice.
That being said, times are tough, and homeowners may not have liquid cash available to spend – or simply don’t want to spend that much money at once and want to spread it out a little further. That’s where other payment methods come into play.
Loans Attached to the Property
A home equity line of credit (HELOC) is a popular payment option for homeowners looking to borrow on the equity they’ve grown to make home improvements, such as the addition of solar panels. Home equity lenders offer interest rates that may be a little higher than the rates of first mortgages, but you’ll save on closing costs – and by using it on solar panels, essentially you’re putting your old power bill towards the repayment, so you’ll see an immediate benefit to your investment.
The main downside to borrowing on home equity is that the lender is placing a second lien on your home, which gives them rights to your home along with the first mortgage lien if you fail to make payments.
Loans Attached to the Solar Panels
Homeowners who would rather not take out a second mortgage on their home can also receive solar-specific loans. We partner with a variety of reputable lenders, like Dividend Finance, Goodleap, and Mosaic, who have a range of loan products to suit your needs. These loans are set up to cover the entire solar project cost, and replace your power bill with a fixed, predictable monthly payment that eventually goes away when the loan is paid off.
Interest rates available through these loans are subject to the market and the homeowner’s credit score at the time of application and approval. Loans, just like cash, allow the homeowner to receive the federal solar tax credit, Pearl Certification to help document the value of your new energy-efficient home improvement, as well as ownership of excess solar energy produced. In the case of nonpayment, the lender has rights to repossess the solar but not the home, since the lien is put on the system hardware and not any other personal property.
Solar Leasing and PPA Programs
Leases and Power Purchase Agreements (PPA’s) are very similar. In either scenario, a homeowner is basically renting their roof space to a third-party provider who owns, installs, operates and maintains the solar system. In exchange, the homeowner benefits from a fixed monthly payment that increases a little bit over time, though usually at a much lower rate than the utility would charge for the same electric usage. There’s no down payment required and no liens on the property.
A PPA differs from a lease in that, rather than a fixed monthly payment, the homeowner agrees to receive solar energy at a set kilowatt per hour (kWh) price, which is almost always less than the current utility bill.
As with a loan, monthly payments are dependent on credit score. However, because the homeowner doesn’t directly own the system, they won’t see a federal tax credit or a bump to their property value. Instead, the third-party-owner (TPO) receives the tax credit and other rebates, and uses that to reduce the total cost of the system so the homeowner still benefits from reduced costs. At the end of the lease or PPA contract, the homeowner has the option to renew the lease, purchase the solar system for a low buyout fee, or have the equipment removed.
ESP is proud to partner with a range of TPO organizations, such as:
- Brightstar Leasing, powered by Service Finance and Truist Bank, one of the top 6 largest financial organizations in the country
- Everbright, with a range of PPA and loan options
- Lightreach, a great option with a simple application process
- Sunrun, one of the largest solar providers in the country
No Bad Deals
When considering financing options, no one wants to get stuck with a bad deal, but the worst deal of all is being stuck paying a never-ending power bill with nothing to show for it. Utility rates in California have increased dramatically over the last four years and will continue to rise as the investor-owned power companies demand higher profit from customers.
No matter which of the above payment options works best for you, when you start harvesting solar power, you replace your current (ever-increasing and never-ending) utility bill with a reliable, affordable fixed payment. You bought your home to avoid rent checks and dealing with landlords, so taking ownership of your power just makes sense.