What is the Best Way to Finance Solar?
Solar power is appealing for many reasons, whether for cost savings, environmental activism, or backup power reassurance. But many homeowners feel stuck financially when desiring to make this dream a reality. What is the best way to finance solar? Find out in this article just a few of the options that are available.
If you have cash saved up, this is obviously the cheapest way to finance your system. Solar energy for your home can honestly be as good of an investment as a mutual fund (or better). Several factors need to be considered, like market conditions, inflation, electrical cost escalation, etc. In most cases, solar is actually a worthwhile place to stash cash. It’s actually a smart place to invest, because the income stream is guaranteed as long as the sun keeps shining. This is an ideal option for those who like to avoid debt in all circumstances. This is also great for those who want the assurance of backup power without having to worry about economic conditions. The internal rate of return on many solar projects ranges from 7-15%. This makes solar a high return investment for those who might be more risk averse.
FHA 203k Rehab Loan
The Federal Housing Administration 203k loan is a unique mortgage that offers homeowners the opportunity to borrow some of their rehab costs in addition to the balance on a home. These costs can be applied to solar installation and other energy efficient upgrades. This is a rare situation where a lender will lend out more than the present value of the home. Rates are low, near to mortgage rates, plus about 1%, depending on credit. This is arguably the best way to finance solar projects.
Home Equity Loan
If a homeowner has sufficient equity, getting a home equity loan makes a lot of sense for financing solar. Installation of solar panels typically increases a home’s value. So, one is simply using their equity to create more equity. This all depends on the neighborhood and other comparable factors. With good credit and good equity, the rates on a home equity loan are some of the lowest interest rates to finance such a system.
The last option is the HERO financing program, which is available in Missouri, but not Kansas, at this time. HERO financing is a good solution for those who have some equity in their home, but who do not necessarily have good credit. No credit check is performed when determining if someone is eligible for HERO financing. Mortgage debt cannot exceed 90% of the value of the home. You make the payments through your property taxes, which can provide some unique tax benefits.
However, HERO financing has a few drawbacks in that the loan is non-transferrable. It creates a tax lien on a property, which must be repaid before any other debts on the house and before the deed can be transferred. If a homeowner plans to stay in the home for a long time, HERO financing becomes a more attractive option. However, rates for longer term projects (like a 25 year solar project) are considerably higher than mortgage rates.
We at A-Line Energy Solutions have a network of lenders. They can tell you which type of financing is ideal for your situation. Just as it makes sense to buy a home due to the time value of money, it makes as much sense to buy solar panels, even if you need to finance them. If solar is right for your property, as long as you’re able to borrow at a rate that is comparable to the inflating electrical costs, it makes sense to finance solar panels. Contact us, and we can show you the best way to finance solar projects in your situation.