6 loan options to finance your solar panels

You probably don’t need to be sold on the benefits of installing solar: lower energy costs, added value to your home, and playing your part in helping the environment and going green.

But it doesn’t come cheap. We’re talking tens of thousands of dollars, despite the steady decline in the cost of solar panel technology over the last decade or so. 

This means that many homeowners can’t afford to pay for this upfront, making it necessary to borrow the money that’s needed. But a number of different options exist, and it can be difficult to know which one is right for you and the difference between each of these.

Choosing the right way to finance solar panels doesn’t have to be difficult, however, and in this guide, we’ll walk you through the pros and cons of six different options, including RenoFi Loans, solar loans, and more. 

Specifically, we’ll look at:

How Much Does It Cost To Install Solar Panels?

You’ll be pleased to know that the cost of installing solar panels has been steadily declining year on year, and that going solar has never been more affordable. In fact, the Solar Energy Industries Association reports that “the cost to install solar has dropped by more than 70% over the last decade.“

And while the cost of solar can different significantly depending on your location, your rooftop’s solar potential (how much sunlight you get each year) and the efficiency and size of the panels, you’re probably wondering what the average cost of an installation is in the U.S.

The cost of a solar electric system is measured in dollars per watt and, according to Modernize, the typical cost for a residential solar energy system is $2.50 to $3.50 per watt, and that “solar panel installation costs around $18,500 for a 6kW solar panel system for a 1,500 square ft. home.” 

Expect to pay somewhere between $10,000 and $28,000, depending on your location for a typically sized installation, however it’s important to remember that this cost will increase for larger homes and that “a high-priced Tier 1 solar panel system can cost $40,000 or more.”

Remember, though, that you’re going to face more costs than the panels alone, and it’s important to consider the following to accurately estimate how much money you’ll need:

• Labor costs
• The cost of solar mounts
• The cost of solar inverters
• Permit fees, inspection fees and taxes

These “soft costs” as they’re known commonly make up the bulk of the price you’ll pay to install a solar system to your home, especially as the cost of the panels continues to drop.

The Cost of Different Solar Panel Sizes

How much electricity do you need to (or want to) generate? Perhaps unsurprisingly, larger systems cost more to install, and this means that the biggest influencing factor on the cost of installing solar panels is usually the size.

Given that the average home is reported to have an average monthly electricity consumption of 877 kWh (10,649 kWh each year), a typical home that enjoys a decent amount of sunshine each year would need to install a 5kW or 6kW solar energy system in order to reduce their energy costs. 

Returning to the data from Modernize, here’s how much you can expect to pay, on average, for different sizes of solar panel:

Remember that now all systems are the same, and that more efficient equipment will come at a higher cost, however this will inevitably produce more electricity than a less efficient system from the same amount of sunlight.

The Cost of Different Types of Solar Panel

There isn’t just one type of solar panel, and perhaps unsurprisingly, the cost of these differs depending on which you opt for.

There are four main types of solar panel:

• Monocrystalline - High energy efficiency and will last the longest.
• Polycrystalline - Lower energy efficiency than monocrystalline, but space efficient 
• Thin-film - The cheapest option but has the shortest lifespan and needs the most space
• Concentrated Photovoltaic (CPV) - High energy efficiency, but only operates in direct light 

When it comes to the cost, here’s what you can expect to pay for each of these different types, on average, for a 6kW system, according to HomeAdvisor:

The Estimated Cost of Solar Panel Installation by Region

One thing that you need to be clear on is that the cost of installing a solar energy system can differ somewhat significantly depending on your location, but what must also be considered is that larger systems are more likely to be installed in states that benefit from lower pricing and different levels of sunlight.

Based on data from EnergySage, here’s how the average cost of a 6kWh solar system differs between states:

While there’s a clear difference in the cost per watt across the US, each one of these falls within $0.50 of the national average of $2.81. Solar is affordable right across the country, and there’s an increasing demand even across states that come at a higher cost per watt.

How Much Does A Tesla Solar Roof Cost?

You’ve probably heard about Tesla’s Solar Roof; a relatively new product from Elon Musk’s Tesla that seamlessly integrates photovoltaic solar shingles into a roof, thus combating the complaint that many homeowners have on solar … the way they look!

A Tesla Solar Roof resembles slate and is intended to fully replace your current roof and offer a fully integrated solar system for your home and, in their own words, “Solar Roof is the only roof that can help pay for itself with the energy you produce. Power your home at the lowest price per watt of any national provider and take control of your monthly electricity bill.”

One thing that stands out is the cost of installing a Tesla Solar Roof, and this might come as a surprise.

According to Solar Reviews, “In September 2020, Tesla lowered the pricing of the solar roof from $2.85 per watt to $2.01 per watt before incentives, making it cheaper than the national average cost for solar.”

That said, the actual cost depends on the size of your home and your energy usage, with a 10 kWh solar system estimated to cost $31,133 after federal tax incentives.

If you’re eager to enjoy the benefits of solar energy but aren’t a fan of the aesthetics of solar panels, a Tesla Solar Roof could be a great option, but consider your financing options carefully to ensure you’re able to keep monthly payments as low as possible.

How Long Do Solar Panels Take To Pay For Themselves?

There are two main reasons why homeowners choose to install a solar system; as a way to reduce their utility bills or to play their part in environmental change.

But ultimately the other questions that’s hot on the lips of anyone considering making the investment into solar are about how long a system will typically take to pay for itself.

This can be estimated by calculating the payback period, one that’s commonly used to demonstrate the value of generating your own solar energy. Essentially, this shows how long it takes for solar panels to pay for themselves.

Calculating the payback period of a solar energy system is as simple as taking the total cost of installation and dividing it by the average annual energy cost savings. This then gives you the time taken to recoup the cost.

If it costs $15,000 to install solar to your home and your energy costs reduce by $1,250 each year, your payback period is 12 years. 

But don’t forget that after this period, solar panels are straight up saving you money on your electricity cost, and if you intend to stay in your home long-term, you’ll be in a position to enjoy these savings for many years to come.

Do Solar Panels Add Value To Your Home?

In many ways, solar panels are different from other home improvements in that they actively reduce your annual energy cost while also adding value to your home. 

In fact, SunRun estimates that you can expect to see an increase in your home’s value by between $4,020 and $5,911 for every kWh panel that’s installed.

That means that a 6kWh system could see your increase in value by between $24,120 and $35,466.

To put it simply; the cost of installing a solar system is typically recouped when selling a property, further adding to the positive ROI that this can deliver.

However, considering your financing options carefully is incredibly important, both to ensure you’re able to borrow the money you need to finance the project but also to keep monthly payments and interest rates as low as reasonably possible.

Understanding Federal Solar Tax Credit

Installing solar panels to your home can help to reduce your income tax in the form of Federal Solar Tax Credit.

But just what is this?

Federal Solar Tax Credit is a tax credit that can be claimed on federal income taxes for a percentage of the cost of a solar energy system that generates electricity for a home that’s located in the US.

Prior to December 2019, the available tax credit was 30%. This decreased to 26% in 2020 and will stay at this percentage through 2022. On January 1, 2023, this will phase down to 22%.

If you’ve been considering installing solar panels, now is the time to do so while the tax credit is in place.

Let’s say that you spend $20,000 on installing a solar system. The tax credits available to you in 2021 at 26% would be $5,200, effectively reducing the cost to just $14,800.

You can learn more about the Federal Solar Tax Credit here.

The Pros & Cons of 6 Solar Financing Options

You’re going to be faced with a number of different solar financing options, and it can sometimes be difficult to know which is the right one for you, remembering that making the wrong choice can be costly (higher monthly payments), limit your borrowing power or both.

Whether you’re starting your search for a solar loan or are already considering an option that’s been recommended to you, it pays to carefully consider which approach is best for financing your solar energy system to make sure you’re able to borrow all of the money that you need with the lowest possible monthly payments.

And with that in mind, we’ll walk you through the pros and cons of 6 of the different solar panel financing options that you might be considering.

RenoFi Loans

A RenoFi Loan is a new type of home renovation loan that combines the best bits of a construction loan with a home equity loan, letting you borrow based on your home’s after renovation value.

You see, adding solar to your home will almost certainly increase its value, and this type of financing acknowledges this, letting you tap into your home’s future equity to fund the improvements upfront.

And this allows you to increase your borrowing power while keeping monthly payments affordable, all without needing to have tappable equity built up or having to borrow on high-interest (expensive) unsecured personal loans.

In fact, when compared with a traditional home equity loan, the average homeowner can increase their borrowing power by 11x using this type of financing.

RenoFi Loans are also the only type of home renovation loan that do not require you to refinance and don’t involve the complexities that come with construction loans, FHA 203ks, HomeStyles and other types of loans.

Here’s how these loans stack up against some of the other options that you’re probably considering:

These loans are available either as a home equity loan or a home equity line of credit, with the latter being a great way to finance a series of projects together; let’s say, for example, that you are looking to make other energy efficient improvements to your home alongside the installation of solar panels. Using a HELOC means you can draw the money that’s needed for each of these projects when you need them over a 10 year interest-free period.

Here’s what you need to know about the RenoFi Home Equity Loan:

• Loan amounts from $20k to $500k
• Same low fixed rates as traditional home equity loans
• Term up to 20 years
• Ability to borrow up to 90% of the after renovation value
• Full loan amount available at closing

And here’s what you need to know about the RenoFi Home Equity Line of Credit:

• Loan amounts from $20k to $500k
• Variable rates
• 10 year interest-only period, followed by 20 year amortization
• Ability to borrow up to 90% of the after renovation value
• Line of credit that can be drawn down & paid back at your leisure for 10 years

We’re betting that the installation of a solar energy system isn’t the only improvement that you want to make to your home right now, and a RenoFi Loan can be the perfect way to tackle your entire renovation wishlist in one go.

In fact, if you’ve found yourself in a position where you’re needing to decide which of two or more projects you’re going to tackle first due to being unable to borrow all of the money you need (either because you don’t have enough equity built up in your home or that you’re unable to borrow a larger amount with an unsecured personal loan), we can totally relate to you.

This was the situation that RenoFi CEO and Co-founder, Justin Goldman and his wife, Megan, were in. It became clear that by the time the couple could afford to turn their home into the perfect space for the whole family, their three kids would be nearly ready to leave for college. 

You only raise your family once, and the couple were determined to find a better way to finance their renovation so that they could raise their family in a home that better met our family’s needs - and truly felt like theirs.

The result? RenoFi Loans.

As Justin comments, “What if you could access this increase in value upfront, alongside any existing equity you already have in the property? RenoFi Loans do exactly this. They are renovation-specific versions of a home equity loan or cash-out refinance with one key difference: the appraisal is based on the future home value, not the current. That increases the homeowner’s borrowing power, often by 11x or more, AND ensures they get the lowest rate possible.”

For many homeowners, a RenoFi Loan is the perfect way to finance solar panels or a solar tiled roof, and we encourage you to arrange a call with one of our advisors or to use the RenoFi Loan Calculator to see how much you could borrow and what your monthly payments could be.

Home Equity Loans & Lines of Credit (HELOC)

One of the most common ways to finance home improvements has traditionally been to tap into your home’s equity with a home equity loan or home equity line of credit (HELOC). But this isn’t an option for recent homeowners who haven’t yet built up the equity that’s needed to cover the cost of their project.

Think about it this way…

Building up equity takes time, and you can see in this scenario (a $400k home with a 6% down payment) that it would take 10 years after buying the home to have $100k tappable equity available.

Most homeowners don’t want to wait this long, but with this financing option, the only real alternative is to reduce the scope of the project. This isn’t what most people want, either.

You need to know that choosing an option that allows you to borrow based on your home’s after renovation value, such as a RenoFi Loan, means you don’t need to wait or reduce the scope of your project. 

That said, for homeowners who bought their home many years ago, this remains a popular choice, but we encourage you to think carefully about what your renovation wishlist really looks like.

You might have the equity you need to finance your solar energy system, but are there other home improvements projects that you wish you could afford to carry out? Using the equity that’s in your home is always going to limit your borrowing power, and it therefore makes sense to at least consider the other options available, dream big and ask yourself what you’d love to change about your home if you could borrow the money that’s needed.

Cash-Out Refinance

We’ve previously written about how refinancing to pay for home improvements is one of the dumbest things that homeowners do, and this is absolutely the case when it comes to solar financing.

In fact, using a cash-out refinance is usually a bad idea for a few reasons:

• You’ll probably lose that low interest rate you’re locked into, unnecessarily increasing your monthly payments.
• You’ll have much less borrowing power than you would have if you borrowed based on your home’s future value (in fact, a cash-out refinance usually only allows you to tap into 80% of your home’s current value).
• You’ll lose more money with high closing costs of up to 5% of the entire mortgage amount. 

Most homeowners shouldn’t be considering refinancing to pay for solar panels when better-suited options exist, however the exception to this is when refinancing allows you to do so onto a significantly lower rate than you were previously on and have sufficient equity to tap into to borrow all of the money you need without being forced to reduce the scope of your project.

HomeStyle Energy Mortgage or FHA Energy Efficient Mortgage

There’s a good chance that you’re familiar with FHA 203k Loans and Fannie Mae HomeStyle Loans.

These government-backed mortgages allow you to combine the cost of purchasing (or refinancing) a house and renovation costs into a single loan and borrow based on your home’s future value and are often one of the most suitable financing options for homeowners who have a lower credit score and, as a result, cannot qualify for a RenoFi Loan or another alternative. 

Both the FHA and Fannie Mae offer specialist products for financing solar panels; the HomeStyle Energy Mortgage and the FHA Energy Efficient Mortgage, both of which can be added to the aforementioned loans.

And while these two financing options can let you borrow all of the money you need being based on the future value, both come with their own drawbacks which include unnecessary delays to your project, higher interest rates and a monthly mortgage insurance premium.

Take a look at our FHA 203k Loans vs Fannie Mae HomeStyle Loans guide to learn more about these financing options, but be aware that they’re not the best way to finance the installation solar in your home for most homeowners, unless their credit score doesn’t allow them to explore alternatives. 

Here’s how the HomeStyle Energy Mortgage and FHA Energy Efficient Mortgage stack up against a RenoFi Loan:

Personal Loan / Home Improvement Loan

We’re pretty sure you’ve come across home improvement loans when researching different solar financing options. In fact, these are also often advertised as solar loans.

But do you really know what this type of loan is?

In many cases, neither solar loans or home improvement loans are specialist products, rather they’re high-interest unsecured personal loans.

And we’re the first to shout about how homeowners shouldn’t use personal loans to pay for most home improvements, nor should they be using credit cards, with the exception being for low cost projects.

Personal loans aren’t secured against your home, making them a greater risk to lenders and, in turn, resulting in significantly higher interest rates and a lower borrowing power than secure loan alternatives such as RenoFi Loans, as well as much shorter payback periods.

These unsecured loans will only allow you to borrow based on your credit score, income and any other debts, ignoring the value that solar can add to your home.

Trust us when we say that better suited solar financing options exist.

Cash

Cash is always going to be the cheapest way to pay for a solar panel installation, given that there’s no interest to be paid.

But that’s assuming that you’ve got the cash available to pay for this without needing to explore different financing options. And the reality is that most homeowners don’t.

Some will turn to their emergency savings or borrow from a retirement fund, but this isn’t recommended. After all, emergency savings should be kept in case of an emergency or unexpected costs, not be used to pay for solar panels. 

When a number of different solar financing options exist that can let you borrow the money and make affordable monthly payments, it rarely makes sense to use cash unless you’re lucky enough to be able to do so without taking it from emergency savings.

Most homeowners need to consider some type of solar financing to be able to afford to install solar panels in their home.

But when you realize that solar panels not only add value to your home but can also significantly reduce your annual electricity bill, they very quickly become a very attractive addition to your property.

And, of course, that’s before you consider the environmental benefits and the Federal Solar Tax Credits that are currently on offer.

A solar loan (whether that’s a RenoFi Loan or another solar financing option that’s better suited to your individual circumstances) is a great way to be able to afford the cost of solar panels, but in order to figure out the best type for you, it’s important that you consider things like:

• How much money is it going to cost to install solar panels?
• How much equity do you have in your home?
• What’s your credit score and credit history?
• Do you have any other debt on other loans and credit cards?
• What is the maximum monthly payment you can afford?
• How long do you want to repay the loan over?

Choose the wrong method of financing and you’ll end up either struggling to borrow the money you need or with unnecessarily expensive monthly payments as a result of shorter payback periods, higher interest rates or a requirement to refinance.

Think carefully about the different options available to you and understand the pros and cons of each. What’s right for one homeowner isn’t necessarily going to be right for another.

Why not chat with one of our advisors to see whether a RenoFi Loan is the right choice for you?