Solar-Panel Installation: Three Major Options for Financing

A solar-panel installation is a long-term investment that is likely to benefit both the environment and your budget. However, many homeowners don't have the funds to pay up front for the equipment and the labor required for an installation. 

Fortunately, there are many different options available for financing the purchase of a solar-panel system for a residence. The following are the three major types of financing available to American homeowners looking to pay for a solar-panel installation. 

A government loan

The United States government encourages homeowners to invest in solar energy by offering two different government-sponsored financing options. These are energy-efficient mortgages (EEM) and loans offered by the property assessed clean energy (PACE) program.

In order to be approved for an EEM, a home needs to be energy rated to determine how efficiently it can use a solar system. This type of loan can help to pay for all or part of a new solar-panel installation.

The PACE program offers loans for solar-panel installations in some states. With this type of loan, the homeowner will borrow money from his or her municipality of residence and pay the loan back over the following years by making higher property tax payments. 

A solar provider service lease or agreement

Solar provider companies can pay for and install solar-panel equipment on a home and charge the homeowner after the installation for the energy produced. The solar providers are then responsible for maintaining and repairing the system while the homeowners use the energy produced for their homes. The two major solar-provider schemes out there now are solar leases and power purchase agreements (PPA). 

With a solar lease, the homeowner must pay a monthly fee to the solar provider for using the electricity produced by the solar panels. This fee is the same regardless of how much solar electricity the panels produce and the household consumes. 

With a power purchase agreement, the homeowner pays for every kilowatt hour that the solar panel system produces rather than paying a flat fee. 

A home-equity loan

Many mortgage lenders offer home equity loans for home upgrades like the installation of solar panels. Once a home-equity loan is paid off, the homeowner will own the solar system outright. 

Homeowners considering financing a solar-panel installation with a home-equity loan need to compare the amount they'll pay out in interest with the amount they'll save on their electricity bills. They'll also want to consider how much longer they're planning on living in their home.