How to Finance Your DIY Solar Panel System

How to Finance Your DIY Solar Panel System

Introduction

Installing solar panels on your home can be an excellent way to reduce your energy bills and minimize your environmental impact. However, the upfront cost of purchasing and installing a solar panel system can be daunting, often ranging from $10,000 to $25,000. Fortunately, there are several financing options available to help make DIY solar more affordable. In this comprehensive guide, I’ll walk through the various methods for financing your DIY solar panel system.

Assessing Your Solar Needs

Before exploring financing, the first step is determining the right solar panel system for your home. Carefully consider the following:

  • Energy usage – Review 12 months of electric bills to estimate your annual energy consumption. This determines the solar array size needed.

  • Roof size/condition – Measure your usable roof space and ensure it’s in good condition for solar panel mounting.

  • System type – Decide on a grid-tied, off-grid or hybrid system based on your energy needs and local net metering policies.

  • Equipment needs – Calculate needs for solar panels, inverters, racking, wiring and other system components.

  • Installation – Determine if you will DIY or hire a solar installer to size the system and identify installation costs.

Once you’ve assessed these factors, you can estimate your total system cost and size the financing needed.

Paying Cash Upfront

Paying outright in cash is the most cost-effective way to go solar, as you avoid paying any interest on loans. This option only works if you have sufficient savings set aside or can liquidate assets to self-finance the project. The major advantage is owning your system outright after installation. The downside is tying up your capital and missing out on potential investment returns from those funds.

Before using cash, first explore available incentives and rebates which can reduce the system cost. The average DIY solar panel system ranges from $10,000 to $25,000, but costs vary widely based on location, equipment, installation complexity and local energy rates. Carefully crunch the numbers to see if paying cash makes sense for your financial situation.

Securing a Solar Loan

One of the most popular financing options is taking out a solar loan to cover your DIY system. These loans provide borrowed capital upfront and allow you to pay off the system over time. Solar loans typically have 6-12 year repayment terms with interest rates starting around 3-7%.

There are several sources available for solar loans, including:

  • Banks and Credit Unions – Many traditional lending institutions offer solar loans. They provide competitive rates and you may qualify for additional discounts if you have an existing relationship.

  • Solar Manufacturers – Top solar equipment providers like SunPower or Sunrun offer low-cost loans directly to consumers buying their products. This can simplify financing but may limit you to a single vendor.

  • Solar Installers – Similarly, some solar contractors provide in-house financing options. This gives you flexibility in choosing your installer but less ability to shop rates.

  • Online Lending Platforms – Companies like Solar Mosaic and Sunlight Financial offer solar loans through easy online application processes. Interest rates are competitive but approval requirements can be strict.

When applying for a solar loan, shop multiple lenders and compare interest rates, fees, loan terms and borrowing limits to find the best deal. You’ll also need to provide credit history and income/employment verification to qualify and secure the lowest rate possible.

Leveraging Home Equity

If you have sufficient equity built up in your home, tapping into it via a home equity loan or line of credit is another way to finance solar panels. The benefits of using home equity include:

  • Lower Rates – Home equity loans/lines often have interest rates around 4-6%, lower than most alternatives.

  • Interest Savings – Interest on home equity loans used for home improvements like solar panels are usually tax deductible.

  • Pay Down Over Time – Like solar loans, you can pay off the borrowed amount over 5-20 years based on repayment term.

  • Accessible Funds – For home equity lines of credit, you only tap the funds needed and avoid taking on unnecessary debt.

When using home equity, shop multiple banks and lenders to find the best rates and terms. You’ll need sufficient equity, usually 15-20% or more of your home value, to qualify as well as meet credit history and debt-to-income requirements. While convenient, the risk is reducing your available home equity which provides financial flexibility.

Exploring PACE Financing

The Property Assessed Clean Energy (PACE) financing program allows homeowners to fund solar panel systems through an assessment added to their property tax bill. With PACE, you repay the amount borrowed over 20 years via slight increases to your property taxes.

Benefits of PACE solar financing include:

  • Long repayment term – Spreading repayments over 20 years reduces annual costs.

  • Typically low rates – PACE programs offer competitive interest rates around 5-8%.

  • Tied to property – The loan stays with the property upon sale, avoiding any solar loan payoff.

  • Repaid via taxes – Repayment via property tax bills simplifies the process.

While PACE availability for solar varies by state, over 30 states offer these programs through state and local governments. PACE loans require meeting certain home equity and credit requirements for approval. Be sure to understand all terms and costs before signing on.

Claiming Solar Tax Credits

A great way to reduce solar panel system costs is taking advantage of federal and state tax credits available for renewable energy systems. For DIY solar installations, the current 26% federal solar tax credit allows you to claim back 26% of your total system cost via reductions to your tax bill over several years.

Many states also offer an additional solar tax credit, such as 25% back in Massachusetts or up to 50% back in Arizona on top of the federal incentive. When layered together, these credits can cover a substantial portion of your overall solar power system costs while also reducing your tax liability. Just be sure to claim the credit in the tax year your solar system is operational.

Leasing Your Solar System

Rather than buying and owning your DIY solar panel system, you may want to consider leasing instead. Under a solar lease or power purchase agreement (PPA), you pay nothing upfront and a solar company installs the system on your home for free. You then make monthly payments to the solar company for use of their system over a term of 15-25 years.

Solar leases come with the following pros and cons:

Pros

  • Little or no upfront cost
  • Fixed monthly payments
  • Maintenance and repairs handled by company

Cons

  • Higher total costs over lease term
  • No ownership of the system
  • Locked into long-term agreement

While leasing shifts the system cost to a third party, you end up paying more over the full term. Leasing makes the most sense for those who can’t afford an upfront solar purchase but want quick access to solar energy with minimal investment. Just ensure you understand the full costs and all lease terms before signing an agreement.

Choosing the Right Financing Option

When it comes to financing your DIY solar panel project, there are multiple options to research and compare. Important factors to consider include:

  • Interest rates, fees, repayment terms
  • Loan or lease provider reputability
  • System ownership goals
  • Total costs over loan period
  • Eligibility requirements

Take time to thoroughly assess each financing method against your specific budget, credit profile, and long-term solar goals. This ensures you select the optimal financing solution enabling you to maximize savings for your home solar project.