The Homeowner Basics Of Financing Solar Power For Residential Real Estate

The Homeowner Basics Of Financing Solar Power For Residential Real Estate
  • The Affordable Care Act, along with local, state, lender and utility level incentives, has made residential solar energy systems retrofit projects more attractive to homeowners.
  • It also reduces the cost of solar modules and batteries.
  • However, self-sufficiency in renewable energy remains a challenge, especially as issues such as metering remain politically controversial and can dramatically change the yield equation, and high interest rates drive up the cost of home energy borrowing.
© Courtesy of CNBC

To avoid rising energy costs and take advantage of increased renewable energy incentives and tax credits, many homeowners may want to consider installing solar panels in their homes. Residential solar growth accelerated in the United States last year. While overall solar installation growth, including commercial and utility projects, has slowed each year, residential solar projects have grown a "staggering" 40 percent to less than six gigawatts, according to the Solar Industries Association. This growth comes from 700,000 U.S. homeowners installing solar panels by 2022.

The solar energy market is plagued by many complexities, including politics. The fight over imported solar and tariffs from China continues, and President Biden recently vetoed a bill that would have reinstated tariffs and possibly increased costs in the solar supply chain. Net metering, the primary way households pay for electricity, was a big hit last year in California, the nation's largest solar market, and is expected to help slow overall solar growth this year. residential projects. And credit conditions in the credit market are tight today, as interest rate hikes by the Federal Reserve drive up lending rates for solar projects.

US solar companies are booming after updated tax credit guidelines.

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For most homeowners looking to upgrade their home to solar, financing can be a big deal, or at least a problem. According to Energy Sage, a marketplace that connects consumers with energy companies, the national average 10-kilowatt solar panel system in 2023, assuming a 30 percent federal solar tax, is about $20,000. Loans have increased as a means of financing solar energy, and although low- and in some cases zero-interest repayments have disappeared, higher bills continue to keep loan rates reasonable. According to energy consultancy Wood Mackenzie, the credit segment had a record share of the residential solar market in 2016. About 70% of the projects will be completed by 2022. This will not happen again in 2023, but the solar market is still an important part.

Starting with the basics is the best way to familiarize homeowners with solar-related financial decision-making. Here are some important factors to consider before deciding to build a home.

Know the costs of solar energy in each state

“It's easier to know what you want to buy and how much it's going to cost before figuring out how to pay for it,” says Joel Rosenberg, a member of Rewiring America's special projects team. Electrification of homes, businesses and communities.

He recommends using EnergySage for competitive solar deals. This gives homeowners a better idea—better than the national average—based on real-world factors like property size. He said it's important to understand this before thinking about how to pay for it.

© Courtesy of CNBC

Look for local energy finance programs

Once homeowners are ready to explore additional financing options, their state Department of Energy and local power company may be a good place to start, as both can offer solar financing programs.

"They may not be directly involved, but they can often make suggestions worth heeding," said Madeleine Fleischer, an Ohio-based environment and energy attorney who runs the website Clean Energy.

Ohio, for example, has a state program that offers discounted interest rates on solar loans with some lenders.

Get solar loan quotes from multiple lenders

Energy Sage CEO Vikram Aggarwal said consumers should look for deals from three to five sources.

Potential lenders could be the homeowner's local bank, credit union, national bank, or a specialized institution called a "Green Bank" that specializes in loans for green projects.

Green banks may have a stronger proposition, Fleischer said. Use a simple Google search for "Green Bank" and there may be options in your state. Homeowners can consult various industry sources, such as the Green Bank Network or the Coalition for Green Capital, to find potential lenders.

Carefully consider the company's offers for installing solar panels.

Solar installation companies like Sunrun and Sunnova offer loans.

Most installers offer 15-, 20- or 25-year loans, while banks can offer short-term loans with low interest rates and low fees, Agarwal said. Interest rates can vary widely depending on the loan amount, term, and creditworthiness of the borrower. Common loan amounts range from $1,000 to $100,000, and APRs can range from 6% to 36% for people with good credit, according to a recent analysis by NerdWallet.

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

Any homeowner considering an installment loan should definitely speak directly with the lender, he said. Homeowners should seek to fully understand the financial deals they are entering into, he said. For example, will it be a fixed or floating rate? How high are the initial financing costs? And what is the expected monthly payment?

It's also worth noting that installers don't always quote a rate. So be sure to weigh the cost of the installation against the financing, says Agarwal. There may be no upfront payments, but it's worth asking and checking the loan document just to confirm, he said.

Find out the rates and conditions of the solar loan

Consumers should always ask what fees are associated with the loans they offer, as the fees can run into the thousands in addition to the interest rate.

Owners should also be aware of other conditions and options that may be available. With some loans, for example, the borrower can reduce the amount once. For example, if a homeowner takes out a $10,000 loan and gets a $3,000 tax credit, that money can pay off the lender and reduce the loan to $7,000. If the option is available, it can usually be used once during the first 12 to 18 months of the loan term, Agarwal said.

Home equity loans and HELOCs can be great options for homeowners who have built up enough equity in their home. According to Bankrate, even homeowners whose credit history doesn't support these options are eligible for affordable personal loans.

Be aware of the credit risks that can lead to foreclosure

The last thing a homeowner should do is get a green finance loan leading to foreclosure. This is a concern for the Federal Trade Commission and the Bureau of Consumer Financial Protection, the state's consumer regulator. Backed by the borrower's property tax, Property-Assess Clean Energy (PACE) loans have been used for decades to finance home improvements using renewable energy sources such as solar energy, becoming especially popular a few years ago. .

The CFPB works with lenders to qualify, and these loans cause borrowers to default on their loans and fall below their credit score. The CFPB's new proposal is meant to protect homeowners from "unscrupulous companies" offering "bogus loans with inflated promises of energy savings," according to a recent statement by CFPB director Rohit Chopra.

The solar finance market is dominated by a few players.

While there are plenty of opportunities to get credit in the residential solar market, data shows that five players dominate total lending volume, which will finance 71 percent of the total residential solar market by 2022, according to Wood Mackenzie. It was the same as the credit market in 2021. GoodLeap (26% of the residential solar market) was #1 overall.

Sunrun and Sunnova together account for 79% of the domestic third-party solar market. This brings up another important decision for homeowners: Should they finance and own the system or lease the rights to generate solar power?

Solar panel leasing is becoming increasingly popular, but it also has its drawbacks

Leasing options are available and may be attractive to some homeowners to avoid upfront costs such as equipment and installation. Another plus is that the owner is not responsible for maintenance. Wood Mackenzie believes homeowner leasing will be more popular this year due to the additional credit leasing companies can receive under the Inflation Act. In addition to the base 30% tax credit, these" rental rates" make the economy more attractive to companies that lease solar systems to homeowners.

However, there are downsides for homeowners.

Rents are typically more expensive for homeowners and they don't qualify for the 30% tax credit, Agarwal said. Rent can cause a lot of problems when homeowners decide to sell their home. That's why it's important to carefully weigh the pros and cons, Agarwal added.

If homeowners are considering this avenue, they should make sure they understand the details of the lease, McDuff said. For example, you need to know how to compare lease payments to current utility payments and what the process is to fix it if something goes wrong.

Solar panel prices keep falling, so rushing is not a good decision.

Expanding and increasing the tax credit under the Reduce Inflation Act will make the cost of solar systems more affordable for consumers, Rosenberg said. But if it's still not available despite getting a loan, check back regularly because rates keep falling and homeowners have 10 years to qualify for the IRA incentive.

“You can get an offer in 2023 and a price in 2026 and it can be two-thirds the cost and still get a tax credit,” he said.

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