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Essential Guide for Homeowners to Finance Solar Power in Residential Real Estate

Homeowner basics of financing solar power for residential real estate

Homeowner basics of financing solar power for residential real estate

As energy costs continue to rise, more homeowners are considering installing solar panels on their homes. Last year, residential solar projects in the US grew by a “staggering” 40%, according to the Solar Energy Industries Association. This growth, which accounted for just under six gigawatts, came from a record 700,000 US homeowners who installed solar in 2022. However, there are several factors that may affect this year’s growth, including the politics surrounding foreign sourcing of solar energy components and tariffs on imports from China, as well as the tightening of lending conditions due to Federal Reserve interest rate hikes. Despite these challenges, financing options for solar projects have expanded and can make the transition to solar energy more affordable.

FAQs:

Q: How can homeowners determine the costs of a solar panel installation?
A: Homeowners can use websites such as EnergySage to find competing solar quotes based on factors like the size of the system.

Q: Where can homeowners find energy financing programs?
A: Homeowners can start by checking with their state’s energy office and local electric utility, as they may offer solar financing programs.

Q: How many quotes should homeowners seek when looking for solar loan options?
A: Homeowners should seek quotes from three to five sources, paying careful attention to terms and conditions.

Q: Should homeowners consider solar installation company loan offers?
A: Homeowners should scrutinize solar installation company loan offers and make sure they understand the financial arrangement they are entering into, including the projected monthly payment and any upfront financing costs.

Q: How can homeowners avoid foreclosure risks associated with solar financing loans?
A: Homeowners should make sure they can afford the loan payments and be aware of lending risks that can lead to foreclosure, which has been a concern for the Federal Trade Commission and the Consumer Financial Protection Bureau.

Q: Who are the dominant players in the solar finance market?
A: Five companies financed 71% of the entire residential market in 2022, with GoodLeap being the largest overall company. Sunrun and Sunnova dominate the third-party-owned market for home solar.

Q: What are the downsides of leasing solar panels for homeowners?
A: Leasing solar panels can be attractive in terms of lower upfront costs and avoidance of maintenance responsibilities, but homeowners should be aware that they will not own the system and may face certain downsides.

Homeowner basics of financing solar power for residential real estate
Homeowner basics of financing solar power for residential real estate

Fundamentals of Solar Power Financing for Residential Real Estate Owners

With energy costs on the rise and increasing incentives and tax breaks for renewable energy, more and more homeowners are considering installing home solar systems. Residential solar projects saw a 40% growth in the US last year, to around six gigawatts, according to the Solar Energy Industries Association. Although nationally there’s been a decrease in solar installations, specifically commercial and utility-scale projects, residential solar continues to boom. This growth comes from a record 700,000 US homeowners who installed solar in 2022.

However, the solar market is complex and political issues continue to affect it. Disagreements remain over the use of foreign solar energy components and tariffs on imports from China. Net metering, which is the way homeowners are compensated by the grid for generating their own energy, took a significant hit in California last year, lowering the overall growth of residential projects this year. Additionally, tighter lending conditions in the credit market have led to higher loan rates for solar projects due to Federal Reserve interest rate hikes.

For most homeowners, financing is necessary or at least worth considering when upgrading their home energy with solar. The national average cost for a 10-kilowatt solar panel installation in 2023 is roughly $20,000, after factoring in a 30% federal solar tax credit, according to EnergySage, a marketplace that connects consumers with energy companies. Loans have become increasingly popular for financing solar as retail utility bills remain high, and even as low and, in some cases, zero-interest rate offers disappear.

Before deciding to move forward with a residential project, there are several key things for homeowners to consider, starting with researching state-by-state solar costs. Joel Rosenberg, a member of the special projects team at nonprofit Rewiring America, recommends using EnergySage to find competing solar quotes to get a better idea of the cost and a better understanding of nationwide averages based on real-life factors.

Once homeowners are ready to look into financing options, they should consider seeking out local energy financing programs. State energy offices and local electric utilities can be good places to start because they may offer solar financing programs. Private lenders, such as homeowners’ local banks, credit unions, or specialized green banks that focus on loans for environmentally friendly projects are also options to consider.

Solar installers, such as Sunrun and Sunnova, offer loans. However, homeowners should be aware that fees can amount to thousands of dollars and they should always ask what fees will be associated with the loans offered. Home equity loans and HELOCs could be a good option for homeowners who have built enough equity in their home, and these options could work well for homeowners whose credit doesn’t allow them to qualify for a personal loan with a favorable rate.

It’s important to remember that green finance loans leading to foreclosure, specifically Property Assessed Clean Energy (PACE) loans, have been concerning for the Federal Trade Commission and the Consumer Financial Protection Bureau. These loans have a property tax lien on the borrower’s home which puts them at risk of falling behind on mortgage payments and becoming less creditworthy.

While there are many options for loans in the residential solar market, data shows that total lending volumes are dominated by a handful of players that financed 71% of the entire residential market in 2022, with GoodLeap being the top provider. Leasing solar systems is becoming an increasingly popular option for homeowners to avoid upfront costs, although it comes at a higher expense. Additionally, leasing companies can receive extra credits under the Inflation Reduction Act, making leasing more attractive for companies. However, leasing homeowners aren’t responsible for maintenance.

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