Adding solar power to your home can have many financial and environmental benefits. Not only can solar panels reduce or eliminate your electric bill, but the investment can also pay off in terms of increasing the value of the property.



a small house in front of a brick building: solar panels at home


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Solar panels at home

If you’re worried about your carbon footprint, bringing solar power to your home can reduce your dependence on non-renewable energy.

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Unfortunately, solar equipment doesn’t come cheap. Although costs have come down in recent years, preparing your home for a new source of energy is an expensive endeavor. The good news is that there are IRS tax credits you can claim that will ease the financial burden, but you still need to find a way to pay most of the expenses up front.

How much do solar panels cost?

Evaluating the cost of solar panel equipment and installation is crucial for homeowners deciding if they can truly afford this investment.

According to a report by US Department of Energy’s National Renewable Energy Laboratory (NREL), the average cost of a residential solar system was $ 2.71 per watt for the first quarter of 2020. Meanwhile, the average size of a residential photovoltaic (PV) installation is approximately 5 kilowatts. , according to the Solar Energy Industries Association (SEIA).

The final cost that you will pay, however, also depends on the type of solar panel system you purchase. There are different types of residential systems, including grid connection systems that require connection to your utility company; off-grid systems that are not connected to the local utility; and grid-tie systems that include battery backup. There are also different brands of solar panels to choose from, and installation costs may vary depending on where you live.

How much money can you save by switching to solar power?

You can get a sticker shock when you see that installing solar power in your home can cost tens of thousands of dollars, but it can still make financial sense due to the potential savings in the long run. Your investment could pay off by drastically reducing or even eliminating your use of the power grid.

According to data published by the US Energy Information Administration, the average monthly electric bill ranged in 2019 from a low of $ 75.63 in Utah to $ 168.21 in Hawaii.

When tracking invoices by region, average monthly electricity bills developed for:

  • New England: $ 126.65
  • Mid Atlantic: $ 107.89
  • North-Central: $ 102.40
  • Central Northwest: $ 110.09
  • South Atlantic: $ 130.04
  • Central-Southeast: $ 134.81
  • Central-Southwest: $ 128.17
  • Mountain: $ 98.94
  • Contiguous Pacific: $ 100.52
  • Non-contiguous Pacific: $ 151.94

The total average for the entire United States was $ 115.49, or about $ 41,576.40 over 30 years. So, depending on where you live and the tax incentives available, your total electricity savings could exceed the cost of installing your solar panel, as long as you stay in the house long enough.

To get an idea of ​​what solar panels could cost you (and save you money on) given the specific location of your home, try using the Project Sunroof Tool from Google. Simply enter your address and you will see the expected solar panel costs for your property, as well as your expected savings over time. It will also break down the environmental impact that your facility might have.

Tax benefits of solar panels

The federal tax credit for solar panel systems installed before the end of 2022 is 26%. The rate will drop to 22% for projects completed by the end of 2023 and expire in 2024 unless Congress renews it.

To qualify for the tax credit, your solar system must be installed in a primary or secondary residence. Rental properties are not eligible for this credit, unlike second homes and vacation homes. In addition, you must have purchased the solar photovoltaic system (either with cash or by financing). The tax credit is not available for systems that you lease from a solar system supplier and never own.

There may also be state and city incentives that you can take advantage of, including discounts. To see what’s available in your area, see the Database of State Incentives for Renewable Energy and Efficiency.

How to finance solar panels

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You can absolutely pay for your solar panel installation with cash up front, but there are ways to borrow the money if you want to pay it back over time. Take out a home improvement loan can help you stretch payments over months or years. It can also help you free up the money while you wait for the federal tax credit money to flow to you.

Personal loans

Overall, the best type of solar panel financing is probably Personal loan. Solar loans come with fixed interest rates and fixed monthly payments that never change during the life of the loan. They also generally offer faster access to cash – sometimes in as little as a day or two – and many come with no set-up charge.

The best part? Personal loans for solar systems are unsecured, so you don’t have to put your home as collateral or have a ton of equity to qualify.

Best for: Financing a solar panel purchase with a personal loan can be a good option for those who need the loan proceeds quickly and for borrowers who have strong credit scores and therefore will likely qualify for interest rates. the most competitive.

A personal loan can also be a good choice for borrowers who want to avoid the home appraisal and closing costs typically associated with other forms of financing, such as a home equity loan, says Steve Sexton, financial consultant and CEO. of Sexton Advisory Group..

Home equity loans and HELOC

If you have a lot of equity in your home and prefer to borrow against it, you may also want to consider a home equity loan or one Home equity line of credit (HELOC). Home equity loans work like personal loans because they have fixed interest rates, fixed repayment terms, and consistent monthly payments.

HELOCs, on the other hand, give you a line of credit that you can borrow like a credit card. With HELOCs, you will usually have a variable interest rate, which means your payment can go up or down as your account balance and the interest rate fluctuate.

Both of these loan options allow you to use your home as collateral, but you can usually only borrow up to 85% of your home’s value with a first mortgage and a second loan. The home equity requirement for these loans limits the number of people who can go this route.

In addition to requiring a lot of equity, home equity loans and HELOCs come with a more complex application process than personal loans. For example, you may need to have your home appraised to be eligible.

But, if you are able to use the equity in your home and have good or excellent credit, the financing will generally have a low interest rate and fair terms.

Best for: Home equity loans and HELOCs make sense to someone who has sufficient equity in their home and who has determined that solar panels are likely to add value to the home, Sexton says.

FHA and Fannie Mae loans

There are also two types of mortgages – the FHA 203 (k) loan and the Fannie Mae HomeStyle Renovation loan – which can help you finance the purchase of a home and the installation of solar panels at the same time, as well as other renovations or improvements. You can use either of these programs to refinance your existing mortgage and pay for your solar upgrades as well.

It should be noted that the Fannie Mae HomeStyle Renovation loan allows a loan to value ratio of 97%, which makes it easier to qualify for some other loans. The loan-to-value ratio is the amount of money you borrow, or the principal of the loan, divided by the value of the property you want to buy or its assessed value.

“This allows the buyer to qualify for a larger mortgage loan. It is easier to qualify for this loan, especially for first-time home buyers,” Sexton says.

Best for: FHA and Fannie Mae loans work best for those who are buying a home and simultaneously looking to have the solar panels installed.

Final considerations

Keep in mind that there are many options and variables to consider when installing solar panels on your home, so it is important to do your research and understand what you are buying. You’ll also want to look for competitive pricing and financing, says Michael Foguth, president and founder of Foguth Financial Group.

“When shopping for solar panels, the company you are working with should also be able to guide you to loan options,” says Foguth.

Plus, it’s always a good idea to cross the numbers and make sure that the investment makes sense and will ultimately pay off for you financially.

“Make sure there is a break-even point in either lower electricity bills or a significant increase in the value of the home to offset the investment,” Sexton says.

Next steps

Solar panels offer reduced utility costs and the environmental bottom line of renewable energy production, but do your homework before embarking on such an important project. You may even consider talking to people who have already installed solar panels to get their opinions on the systems they have selected, or some valuable information or recommendations.

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