Financing solar panels 101
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Adding solar power to your home can have many financial and environmental benefits. Not only can solar panels reduce or eliminate your electric bill, but the investment can also increase property value.
Unfortunately, solar equipment isn’t cheap. According to the latest stats from HomeAdvisor, you may pay anywhere between $17,897 and $33,576 to have solar panels installed in your home. That price tag might feel overwhelming, but the government will reduce your tax bill if you put a new system on your roof. The recently passed Inflation Reduction Act includes a 30 percent tax credit that applies to all eligible expenses. So, if you pay $24,000 to install a new system, you’ll qualify for a $7,200 tax credit.
No matter how much you get to wipe away from your tax bill, though, that upfront cost can still be daunting. The good news is there are several finance options to help make solar panels more affordable.
How much do solar panels cost?
Solar panel costs will vary depending on the type of solar panels that you choose (either monocrystalline, polycrystalline or thin-film). The number of panels you’ll need will depend on their efficiency, the size of your home and how much electricity you use. However, an average-sized house will usually require 20 to 25 panels to fully cover its electricity bills, according to Energysage, a solar-power information and marketplace site.
Solar panels come in three basic types.
- Monocrystalline solar panels are the most efficient of the three. They’re made from a single sheet of silicon, which is then divided into square-shaped solar cells. For each monocrystalline panel, you can expect to pay between $1 to $1.50 per watt (not including labor or installation expenses).
- Polycrystalline solar panels are created from multiple silicon crystals (rather than a single sheet). As a result, they’re less efficient but more affordable. They cost between $0.70 and $1 per watt.
- Thin-film solar panels are very versatile and have a high tolerance to heat. However, they are the least efficient, so you’ll need more of them (and, therefore, more space) to power your home. As a result, they’re used mainly in commercial or industrial settings. You’ll pay around $1 to $1.50 per watt for thin-film panels.
In addition to the equipment, there are also several other costs associated with a residential solar system, including:
- Installation, including labor and permit costs, accounts for about 35 percent of your solar-related expenses, according to HomeAdvisor.
- Operation and maintenance make up around 18 percent of your solar costs.
|Wattage||Midwest, Southwest & West||New England||South||Mid-Atlantic|
|2kW||$6,000 – $7,000||$6,500 – $7,300||$5,900 – $6,800||$6,300 – $7,300|
|5kW||$15,000 – $17,500||$16,500 – $18,200||$15,000 – $17,000||$15,800 – $17,800|
|10kW||$30,000 – $35,000||$33,000 – $36,000||$30,000 – $34,000||$31,500 – $35,500|
How much money can I save by going solar?
You may get sticker shock when you see that it can cost tens of thousands of dollars to install solar power at your home. But it may still make financial sense because of the potential long-term savings. Your investment could pay off by significantly reducing or even eliminating your power grid usage.
According to the most recent data released by the U.S. Energy Information Administration, the average monthly electric bill varied in 2020 from a low of $80.24 in Utah to $162.66 in Hawaii.
When tracking bills by region, average monthly electric bills worked out to:
- New England: $132.71
- Middle Atlantic: $111.75
- East North Central: $105.18
- West North Central: $110.27
- South Atlantic: $127.28
- East South Central: $128.80
- West South Central: $126.14
- Mountain: $104.78
- Pacific Contiguous: $111.97
- Pacific Noncontiguous: $146.84
The total average for the entire United States worked out to $117.46, which is $42,285.60 over 30 years. Depending on where you live and the tax incentives available, your total electricity savings could exceed the cost of your solar panel installation, as long as you stay in the home long enough.
To get an idea of what solar panels might cost you (and save you) given your home’s location, try using the Project Sunroof tool from Google. Just enter your address, and you’ll see the projected solar paneling costs for your property, as well as your expected savings over time. It will also break down the environmental impact your installation could have.
In addition to looking at the savings that can add up in the big picture, be sure to consider the new tax credits included in the Inflation Reduction Act. For example, if your 30 percent credit works out to be $9,000, and you owe $7,000 in taxes next year, your federal tax liability will shrink to zero — and you’ll get to roll over that remaining $2,000 credit to the next year.
Best ways to finance solar panels
If you don’t have the cash on hand to cover the total cost of going solar, consider these solar panel finance options.
By and large, the best type of solar panel financing is probably a personal loan. A personal solar panel loan will come with fixed interest rates and fixed monthly payments that never change during the life of the loan. Some home improvement loans have higher limits or longer terms to make it easier to pay for more expensive options.
Personal loans typically offer faster access to cash — sometimes in as little as a day or two — and many come with no origination fees. Also, personal loans are unsecured, so you don’t have to put your home up as collateral or have a ton of home equity to qualify.
To qualify for the lowest rates, you’ll need good or excellent credit. If you don’t have the best credit, you may get stuck with sky-high interest rates that make financing solar panels expensive.
Who this is best for
Financing a solar panel purchase with a personal loan may be a good option if you need the loan proceeds quickly. It may also make sense if you have solid credit scores and will likely qualify for the most competitive interest rates.
FHA and Fannie Mae loans
There are also two types of mortgage loans — the FHA 203(k) loan and the Fannie Mae HomeStyle Renovation loan — that can help you simultaneously finance the purchase of a home and the installation of solar panels, as well as other renovations or upgrades.
Because the Fannie Mae HomeStyle Renovation loan allows as much as a 97 percent loan to value ratio, it’s easier to qualify for than some other loans. Also, you can use either of these programs to refinance your existing mortgage and pay for your solar upgrades, too.
Compared to alternatives like personal loans, home equity loans/HELOCs, the FHA 203(k) loan may come with higher interest rates. The Fannie Mae HomeStyle Renovation loan rates tend to be lower than the competition’s; but often there’s more red tape involved in the application, and remodeling work must be completed within 12 months of getting the money. Fees and closing costs are usually higher as well.
Who this is best for
The FHA and Fannie Mae loans may be the way to go if you’re purchasing a home and wish to have solar panels installed simultaneously. They can also be smart choices if you aren’t eligible for personal loans with good rates.
Home equity loans and HELOCs
If you have a lot of equity in your home and prefer to borrow against it, you can also consider a home equity loan or a home equity line of credit (HELOC). Home equity loans work like personal loans, as they have fixed interest rates, fixed repayment timelines and consistent monthly payments.
HELOCs, on the other hand, give you a line of credit you can borrow against like a credit card. With HELOCs, you’ll typically have a variable interest rate, which means your payment could go up or down as your account balance and interest rate fluctuate.
If you are able to use your home equity and have good or great credit, home equity loans and HELOCs will usually come with low interest rates and fair terms. Another perk is that you may be able to deduct the interest you pay on them and save money on your taxes.
You can usually only borrow up to 85 percent of your home’s value across a first mortgage and second loan. In addition, home equity loans and HELOCs come with an application process that is more involved than the one for personal loans.
Who this is best for
Home equity loans and HELOCs are a good choice if you have sufficient equity in your home and are determined that solar panels are likely to add value to it. These financing options are also worth considering if you don’t qualify for a personal loan with a good rate because of your credit.
Solar panel tax benefits
Solar panel costs can add up quickly. Fortunately, there are some tax incentives available to help you offset the costs.
One of the best benefits is the federal Inflation Reduction Act’s 30 percent tax credit on solar installations, available for homeowners who purchase and install solar panels on their primary or secondary residence in the United States. The credit runs through 2032 in an effort to continue to spur the solar shift. In 2033, the credit will drop to 26 percent, and in 2034, it will decrease to 22 percent before phasing out in 2035.
Depending on where you live, you may also be eligible for state-sponsored tax incentives. For example, some states allow you to exchange your surplus solar power for credits on your energy bill. In other states, solar panels are exempt from sales tax. Check out the Database of State Incentives for Renewables & Efficiency to explore programs in your state.
Next steps in installing solar panels
Solar energy is quickly growing in popularity, with some states even requiring that new homes come with solar panels. Solar offers reduced utility costs and the environmental upshot of generating renewable energy, but do your homework before committing to such a large project. You may even consider talking to people who have already installed solar panels to get their reviews of the systems they selected, or any valuable insights or recommendations.