The homeowner basics of financing solar power for residential real estate (2023)

To avoid rising energy costs and benefit from increasing renewable energy incentives and tax breaks, more homeowners may be considering a home solar system. Last year, the growth of residential solar in the U.S. boomed. Even as overall growth of solar installations, including commercial and utility-scale projects, decreased year over year, residential solar projects grew by a "staggering" 40%, to just under six gigawatts, according to the Solar Energy Industries Association. That growth came across a record 700,000 U.S. homeowners who installed solar in 2022.

There are a host of complicated issues in the solar market, including some contentious politics. Battles remain over foreign sourcing of solar energy components and tariffs on imports from China — President Biden recently vetoed a bill that would have re-imposed tariffs and likely driven up costs throughout the solar supply chain. Net metering, a primary way homeowners can be repaid by the grid for generating their own energy, took a big hit in California — the nation's biggest solar market — last year, and that is expected to lower overall growth of residential projects this year. And lending conditions throughout the credit market are tighter today due to Federal Reserve interest rate hikes, driving up loan rates for solar projects.

Financing may be necessary or at least well worth considering for most homeowners interested in upgraded their home energy with solar. The national average for a 10 kilowatt solar panel installation in2023 is around $20,000 after taking into account a 30% federal solar tax credit, according to EnergySage, a marketplace that connects consumers with energy companies.Loans have boomed as a way to finance solar, and even as low and in some cases zero-interest rate offers disappear, higher retail utility bills continue to make lending rates reasonable. According to energy consulting firm Wood Mackenzie, the loan segment's record share of the residential solar market reached roughly 70% of projects in 2022. It won't repeat that in 2023, but will remain a large part of the solar market.

Starting with the basics is the best way for homeowners to start wrapping their heads around solar power financial decisions. Here are some key things to consider before making the decision to move ahead with a residential project.

Do your research on state-by-state solar costs

"Before you investigate how you are going to pay for it, it's easy to find out what you might want to buy and what it might cost," said Joel Rosenberg, a member of the special projects team at Rewiring America, a nonprofit focused on electrifying homes, businesses and communities.

He recommends using EnergySage to find competing solar quotes. This will give homeowners a better idea — beyond nationwide averages — based on real-life factors such as the size of the system. This is important to understand before they start considering how to pay for it, he said.

Seek out local energy financing programs

Once homeowners are ready to dig more into financing options, their state's energy office and a local electric utility can be good places to start because both may offer solar financing programs.

"They may not be directly involved, but often they can flag things that may be worth looking into," said Madeline Fleisher, an Ohio-based environmental and energy lawyer who runs a clean-energy website.

Ohio, for example, has a state program that offers a reduced rate on a solar loan with certain lenders.

Get solar loan quotes from multiple lenders

Consumers should seek quotes from three to five sources, being sure to pay careful attention to terms and conditions, said EnergySage CEO Vikram Aggarwal.

Potential lenders can include a homeowner's local bank, credit union, national bank or a specialized institution known as a green bank that focuses on loans for environmentally friendly projects.

Green banks may have even more robust offerings, Fleisher said. Using a simple Google search for "green bank" and your state may yield options. To find potential lenders, homeowners can also consult broader industry sources such as the Green Bank Network or the Coalition for Green Capital.

Consider solar installation company offers carefully

Solar installers, such as Sunrun and Sunnova, also offer loans.

Most installers offer loans for a duration of 15, 20 or 25 years, while banks may offer short-duration loans at lower interest rates and for lower fees, Aggarwal said. Interest rates can vary widely depending on factors such as the loan amount, duration and the strength of the borrower's credit. Typical loan amounts are $1,000 to $100,000, and annual percentage rates for people with excellent credit can range from around 6% to about 36%, according to a recent analysis by Nerdwallet.

"Installers are great at installing solar, but they may not be experts at finance or banking," said Jason MacDuff, president of greenpenny, a virtual and carbon-neutral bank focused on financing sustainable projects.

He said any homeowner considering a loan through an installer should make sure to speak directly to the financer. Homeowners should seek to fully understand the financial arrangement they are entering into, he said. For instance, will it be a fixed or variable rate? What are the upfront financing costs? And what is the projected monthly payment?

It's also worth noting that installers don't always mention the fees, so be sure to ask about the installation cost if paying cash versus financing, Aggarwal said. Prepayment fees aren't likely, but it's worth asking and confirming in the loan documentation, just to make sure, he said.

Scrutinize fees, terms and conditions on solar debt

Consumers should always ask what fees are associated with the loans being offered, in addition to the interest rate, since fees could amount to thousands of dollars.

Homeowners should also be familiar with other terms, conditions and options that may be available. For example, some loans allow the borrower to amortize once to reduce the amount. To illustrate, if a homeowner takes a $10,000 loan and then receives a tax credit of $3,000, the money can be used to pay the lender and bring down the loan to $7,000. Generally, this option, when available, can be used once within the first 12 to 18 months of the loan, Aggarwal said.

Home equity loans and HELOCs could be a good option for homeowners who have built sufficient equity in their home. These options could also work well for homeowners whose credit doesn't allow them to qualify for a personal loan with a favorable rate, according to Bankrate.

Be careful about lending risks that can lead to home foreclosure

The last thing any homeowner should do is let a green finance loan lead to foreclosure. That has been a concern for the Federal Trade Commission and the government's consumer watchdog, the Consumer Financial Protection Bureau. Property Assessed Clean Energy (PACE) loans, secured by a property tax lien on the borrower's home, have been used over the past decade to finance renewable energy home improvements like solar power and were particularly popular several years ago.

The CFPB has worried about lenders that aren't operating on the level, and these loans leading borrowers to fall behind on mortgage payments, and to a deterioration in credit worthiness. A new proposal from the CFPB seeks to protect homeowners from "unscrupulous companies" offering "unaffordable loans with exaggerated promises of energy bill savings," according to a recent statement from CFPB Director Rohit Chopra.

The solar finance market is dominated by a handful of players

While there are many options for loans in the residential solar market, the data shows that total lending volumes are dominated by five players that financed 71% of the entire residential market in 2022, according to Wood Mackenzie. That was similar to 2021's lending market. GoodLeap (26% of the residential solar market) was No. 1 overall.

Sunrun and Sunnova together captured 79% of the third-party-owned market for home solar. This brings up another key decision for homeowners: should they finance and own the system themselves or lease the rights to their solar energy generation?

Solar leasing is poised to be more popular, but has downsides

Leasing options exist and may be attractive to some homeowners as a way to avoid the upfront costs of equipment and installation. Another benefit is that the homeowner isn't responsible for maintenance. Leasing to homeowners is expected to become more popular this year, according to Wood Mackenzie, because of additional credits leasing companies can receive under the Inflation Reduction Act. These "adders" beyond the core 30% tax credit make the economics more attractive to companies that lease solar systems to homeowners.

But there are downsides for homeowners.

Leasing is generally more expensive for homeowners and they won't be eligible for the 30% tax credit, Aggarwal said. Leasing can also present several challenges when homeowners decide to sell their house, so it's important to weigh the pros and cons carefully, Aggarwal added.

If considering this route, homeowners should be sure to understand the specifics about the lease process, MacDuff said. They should, for example, know how the lease payments compare with their existing utility payment and what the repair process will be if issues arise.

Solar prices continue to drop, so rushing isn't the right decision

The tax credit that was extended and increased as a result of the Inflation Reduction Act makes the cost of solar installation more palatable for consumers, Rosenberg said. But if it's still out of reach financially, even with a loan, check back from time to time because prices continue to drop and homeowners have 10 years to qualify for the IRA incentive.

"You can get a quote in 2023 and a quote in 2026 and it might be two-thirds of the cost and you can still get the tax credit," he said.


What I wish I knew before getting solar panels? ›

15 Things to Consider Before Installing Rooftop Solar Panels
  • Does your roof need repairs? ...
  • What is the shape of your roof? ...
  • Which direction do the slopes of your roof face? ...
  • How much weight can your roof handle? ...
  • Where will the water go? ...
  • What about nature's other surprises? ...
  • How do you connect to the grid?

How does financing a solar system work? ›

Solar Loans

With a solar loan, you can have the panels installed and start using them to power your home right away with little to no money down. The payment plan will involve monthly payments over a period of time with interest added. Solar loans are an intriguing option for homeowners.

What credit score do you need to get solar panels? ›

Frequently asked questions about credit and solar financing

Usually, you'll need a minimum score of 600 or 650. However, a credit score isn't the only important number when getting a solar loan: the overall requirements to get approved depend on your lender and other factors, including your existing debt.

Is residential solar power worth the investment? ›

In most cases, installing residential solar panels is worth it. Solar panels typically last 25 years or more and can dramatically reduce or even eliminate your electricity bills — you can save an average of $1,346 annually on energy bills by going solar.

How many solar panels does it take to power a house? ›

An average-sized home in the United States (2,480 square feet) will need about 15 to 22 full-sized solar panels to completely replace traditional energy sources. That being said, the exact number of solar panels needed for your house depends on several other factors.

Is solar worth the hassle? ›

If your area allows them, your home is a good candidate, and an analysis of your energy costs and output suggests you'll save money, the short answer is yes, solar panels are worth the perceived hassle.

How many years does it take for solar to pay for itself? ›

The most common estimate of the average payback period for solar panels is six to ten years. This is a pretty wide range because there are many factors that will influence the number of years it can take to pay off your panels and the monthly savings you can expect.

What is the average interest rate on a solar loan? ›

Interest rates on solar loans generally range from 4% to 7% but can go up to around 36%. Ultimately, the cost of borrowing depends on several factors, including interest rate, term length and fees.

How long is the average solar loan? ›

The average length of a solar loan is around 15 years, which is longer than most solar systems take to pay for themselves. Keep in mind that longer loan terms tend to decrease your interest rate, but they also lead to higher overall payments for your system.

Is a solar loan considered a second mortgage? ›

If you purchased your solar panels utilizing a loan, this is technically considered a second mortgage requiring a subordination agreement signed by the solar company and could affect your rate. While quite common, this could affect the amount of equity available to you, and may affect the rate.

What happens when you pay off your solar panels? ›

Once you pay off your loan or buy your system outright you will essentially be getting energy for free. When it comes to payment, those who are using solar energy will still get a monthly utility bill. This will show how much energy you produced versus how much energy you used for the month.

How do you pay off solar panels? ›

There are three primary ways to pay for solar: with a cash purchase, with a solar loan, or with a solar lease/power purchase agreement.

What is the downside of getting solar panels? ›

Disadvantages of solar energy include a high initial cost, an inability to work on every roof type, and sometimes difficulty in finding a reputable and local installer (depending on where you live).

Is solar really cheaper than electricity? ›

Although solar energy requires an initial investment to purchase and set up, people find that solar energy is a lot less expensive than electric power in the long run due to the rising price of electricity.

How long can a house run on solar power alone? ›

How long can a solar battery power a house? Without running AC or electric heat, a 10 kWh battery alone can power the basic operations of a house for at least 24 hours, and longer with careful budgeting.

How many solar panels do I need for a 2000 square foot house? ›

Thankfully, we've got the answer for you! A 2000 square foot house will need 28- 34 solar panels, which comes out to an average cost of \$3.50 per watt. Not only will installing solar panels save homeowners money on their electric bill, but they can also increase the value of their home.

How many solar panels do I need for a 1500 sq ft home? ›

How many solar panels are needed for a 1500 sq ft home? A 1500-square-foot home, on average, will need between 14 and 17 solar panels to power the home. This is based on an average energy consumption of 967 Kilowatt hours per month.

Will solar ever get cheaper? ›

The good news? Solar costs are very likely to decrease in 2023, making rooftop renewables affordable for more homeowners. In November 2022, the National Renewable Energy Laboratory (NREL) published its analysis of the cost of solar and energy storage (battery) system installations for the first quarter of 2022.

Do you actually save money going solar? ›

Most Californians pay around $116.94 each month for power, so you'll save just over $1,400 annually if you can eliminate your energy bill. The average lifetime savings enjoyed by California solar customers is around $29,734, and that's after the upfront expenses of going solar are recuperated.

Do the pros outweigh the cons of solar panels? ›

Pros and Cons of Solar Energy
Advantages of Solar EnergyDisadvantages of Solar Energy
Decreases use of non-renewable resourcesHigh upfront costs
Reduces power billSunlight dependent
Energy independenceSpace constraints
Long-term savingsEnvironmental impact of manufacturing
5 more rows
Jan 5, 2023

How long do solar panel batteries last? ›

On average, solar batteries last between 5 to 25 years. Lithium-ion batteries are the most prevalent solar battery type and have a lifespan of up to 15 years. Some factors that impact a solar battery's longevity are battery type, installation, depth of discharge, cycle life, environment and maintenance.

How long will it take for your solar system to pay for itself using $20000 initial cost and $2500 yearly savings? ›

That system costs you $20,000 after cashing in all federal and local solar incentives. In this situation, take $20,000 and divide that by $2,500. This means that the system will have paid for itself in 8 years.

How long do solar panels last on a roof? ›

Solar panels, also known as photovoltaic or PV panels, are made to last more than 25 years. In fact, many solar panels installed as early as the 1980s are still working at expected capacity. Not only are solar panels remarkably reliable, solar panel longevity has increased dramatically over the last 20 years.

What is a buy down on a solar loan? ›

A buy down is a solar financing technique similar to paying down points on a mortgage that helps you obtain a lower interest rate for the life of the loan. The purchase price will be increased to cover the points reduction on the interest rate.

How do I get out of a solar loan? ›

The three typical ways to get out of a solar lease are to:
  1. Solar lease buyout – Buy out the remaining part of the solar lease or keep making monthly payments. ...
  2. Purchase the solar PV system in its entirety at market price.
  3. Transfer your solar lease agreement.

Does a solar loan count as debt? ›

If you're currently financing your solar panels, any payments must be included in your debt-to-income ratio.

Is solar loan interest tax deductible? ›

Tax benefits: Whenever you use home equity financing for a home improvement project, including solar panel installation, you can deduct the interest on your taxes.

What is the best rate for solar? ›

Compare the Best Solar Panel Loans in 2023
Best ForAPR Range
SoFiBest for Large Loans8.99% - 25.81%
LightStreamBest for Quick Funding7.49% - 24.49%
UpgradeBest for Poor Credit8.49% - 35.99%
Dividend FinanceBest for Workmanship WarrantyN/A
2 more rows

Why are solar loans so low? ›

Solar loans with the lowest cost of financing are structured to take maximum advantage of the ITC by having high fees (technically cash discount removals) and low interest rates. These fees are baked into the loans, which almost never require any money down.

Does solar panels increase house insurance? ›

You may not see an increase in your homeowners insurance premium after installing solar panels on your roof. However, you'll likely need to raise your coverage limits to account for the replacement cost of your solar panels, which will likely result in some increase to your premium.

How many times can you claim solar tax credit? ›

Frequently Asked Questions (FAQs)

You can claim the solar tax credit only once.

Does solar loan affect debt to income ratio? ›

Yes — all loans or lease payments change your debt to income ratio.

What happens to solar lease when owner dies? ›

Your heir(s) or estate can continue making monthly payments on the PPA or solar lease after death. This is often deemed preferable if the property is staying within the family. They can pay off the remaining balance to buy out the lease. This often happens if the estate or a family member plans to sell the home.

Can I pay off solar loan early? ›

Yes, you can prepay full or partial amounts at any time without penalty. Even if you pay off your loan early, your home solar system and roof warranty will continue to be provided.

How much money do you actually save from solar panels? ›

Key takeaways about solar savings

Solar panels cost money upfront, but will provide significant savings on energy bills over time. The average home can save between $20,000 and $97,000 over the lifetime of your solar panel system, depending on the cost of electricity in your area.

How are solar projects financed? ›

Third-party solar financing predominantly occurs in two forms: solar leases and power purchase agreements (PPAs). In the lease model, a customer signs a contract with an installer/developer and pays for the use of a solar system over a specified period of time, rather than paying for the power generated.

How do you calculate solar ROI? ›

How to calculate the ROI. Once you know how much you spent on electricity over the last year, to determine your solar ROI, simply divide the total cost of the system by the annual benefit of installing the system. For example, let's say a panel system costs $20,000 with both purchase and installation fees included.

What is the biggest problem with solar energy? ›

Intermittency. One of the biggest problems that solar energy technology poses is that energy is only generated while the sun is shining. That means nighttime and overcast days can interrupt the supply.

Is solar worth it 2023? ›

Yes, getting a solar panel system is worth it for the excellent financial benefits and cost savings. However, solar panels aren't suitable for everyone. Residents with low energy needs, low electricity rates, or year-round inclement weather may not save money from a solar system.

What are 10 disadvantages of solar energy? ›

10 Disadvatanges Of Solar Panels
  • High upfront cost. ...
  • The size of system is dependent on your available space. ...
  • Requires sunny weather to work best. ...
  • Manufacturing of solar panels can harm the environment. ...
  • Low energy conversion rate. ...
  • Cannot be used at night. ...
  • Solar panels are fixed at their installed location.

What is the cheapest form of electricity to produce? ›

Renewables are the cheapest form of power today confirms a new report from the International Renewable Energy Agency. Amid climbing fossil fuel prices, investments in renewables in 2021 saves US$55 billion in global energy generation costs in 2022.

Is solar now cheaper than gas? ›

Utility-scale solar is now about a third cheaper than gas-fired power, while onshore wind is about 44% less expensive, Guggenheim analysts led by Shahriar Pourreza said Monday in a note to clients.

What are three limitations of solar energy? ›

Limitations of Solar Energy: Can be harnessed only at those places which get plenty of sunlight. Cannot be harnessed beyond certain latitudes. Cannot be harnessed during night.

Is it worth putting solar panels on my roof? ›

In most cases, installing residential solar panels is worth it. Solar panels typically last 25 years or more and can dramatically reduce or even eliminate your electricity bills — you can save an average of $1,346 annually on energy bills by going solar. Solar is a large upfront investment.

Does solar energy affect human health? ›

In summary, solar panels are a healthy, safe, and effective alternative to other energy sources. Whether solar panels are installed on your roof or across the street from your home, you do not need to worry about any adverse effects that could negatively impact your health.

Are you really saving with solar panels? ›

Solar panels cost money upfront, but will provide significant savings on energy bills over time. The average home can save between $20,000 and $97,000 over the lifetime of your solar panel system, depending on the cost of electricity in your area.

What questions should I ask before installing solar panels? ›

10 Questions to Ask Before Going Solar
  • Why should I go solar? ...
  • Is my house right for solar? ...
  • Is my electricity bill high enough to justify going solar? ...
  • How should I finance my panels? ...
  • How much does solar cost? ...
  • How much money will I save with solar? ...
  • What type of panels should I be looking for?
Sep 9, 2022

How long is it going to take to get a return on your investment with solar panels? ›

The most common estimate of the average payback period for solar panels is six to ten years. This is a pretty wide range because there are many factors that will influence the number of years it can take to pay off your panels and the monthly savings you can expect.

What sort of maintenance do solar panels need? ›

Solar panels generally require very little maintenance in order to function, so yes, you can usually just let them be. The only thing they need is a periodic light cleaning to make sure dirt, leaves, and other debris aren't obstructing the sun's rays.

Can solar panels work with AC? ›

The simple answer to this question is yes. You can most definitely run your AC on solar power. As long as you provide steady voltage and continuous current, you will have no problems.

How long do solar panels last? ›

Solar panels, also known as photovoltaic or PV panels, are made to last more than 25 years. In fact, many solar panels installed as early as the 1980s are still working at expected capacity. Not only are solar panels remarkably reliable, solar panel longevity has increased dramatically over the last 20 years.

What are 5 questions about the solar system? ›

Important Solar System Questions with Answers
  • 1) How many planets are there in the Solar System? ...
  • 2) Which planet is the closest to the Sun? ...
  • 3) Match the following. ...
  • 4) Solar System is located in _____ galaxy. ...
  • 5) Why is it called the Solar System? ...
  • Q6) Where do most comets arrive from? ...
  • 7) How did the Solar system originate?

What precautions should be taken while installing solar panels? ›

Surveying rooftop for plot points
  • High quality and well maintained Personal Protective Equipment (PPE) to be used during the solar power installation.
  • While the installation is in progress, use of mobiles and other electrical devices is prohibited to avoid all distractions.

How do I test my solar panels before buying? ›

Testing Open Circuit Voltage (VOC)

Connect the positive lead of the multimeter to the positive wire (or terminal) of the solar panel, and the negative lead of the multimeter to the negative wire (or terminal) of the solar panel. The multimeter will now show the Open Circuit Voltage of the solar panel.

What happens after you pay off solar panels? ›

Once you pay off your loan or buy your system outright you will essentially be getting energy for free. When it comes to payment, those who are using solar energy will still get a monthly utility bill. This will show how much energy you produced versus how much energy you used for the month.

Do you get money back from using solar energy? ›

What are the residential solar tax credit amounts? Installing renewable energy equipment on your home can qualify you for Residential Clean Energy credit of up to 30% of your total qualifying cost, depending on the year the equipment is installed and placed in service. After 2034, the credit is scheduled to end.

What is a good return on investment for solar? ›

Prices & returns on solar power
System size (kWp)Annual generation (kWh)Investment rate of return (IRR)
2 more rows

How often do solar panels need to be serviced? ›

Solar panels only need maintenance two to four times a year, but check your solar companies manual for panel specific maintenance care. Fall and spring serve as good times to perform maintenance work because panels can need cleaning following winter where dust and debris can accumulate.

Do home solar panels need to be cleaned? ›

Maintaining your panels is essential, but you don't need to clean them as often as most people think. You may need to remove the occasional buildup of leaves, bird droppings, and other debris to maximize the amount of sunlight exposure your panels receive.


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