Going Solar
Financing Options
The Major Solar & Energy Upgrade Lenders
The three major solar and energy efficiency lenders are Sunlight Financial, Mosaic and GoodLeap (formerly named LoanPal.)
Each offer a range of options and a straighforward application process. However, in order to secure a low interest rate, a upfront "Dealer Fee" is added to the project's cost and paid by your installer to the lender. Some homeowners who pay a large Dealer Fee of 20% to get, say, a 3.99% interest rate for 20 years, end up selling their home in seven or eight years and paying off the loan in escrow—they would have been better off paying a higher interest rate and lower Dealer Fee.
These Dealer Fees and interest payment increase you payback period and cost per kWh generated. It is always better to pay cash whenever possible, or secure a HELOC loan from your bank.
HELOC Loans
Securing a Home Equity Line of Credit (HELOC) for solar and energy efficiency improvements involves using the equity in your home to borrow funds for these specific upgrades. A HELOC is a type of revolving credit that allows you to borrow against the value of your home, with the home itself serving as collateral.
To secure a HELOC for solar and energy efficiency improvements, assess your home's equity, research lenders for favorable terms, submit an application with required details, potentially undergo a home appraisal, await underwriting approval, review and accept the terms, go through the closing process, access funds during the draw period, make the planned improvements, and commence repayment as outlined in the agreement.
Pros: HELOCs offer competitive interest rates, and the interest paid is usually a deductible expense, as the loan is secured by your home and not just the new equipment installed. They allow flexible use of funds for various improvements, potentially offer tax benefits, and provide revolving credit during the draw period for added flexibility.
Cons: HELOCs typically have variable interest rates that may lead to increased payments, and failure to meet payment obligations could result in the risk of foreclosure, as the home serves as collateral. Closing costs are associated with HELOCs, and managing the transition to higher monthly payments after the draw period can be complex. Moreover, qualifying requires a good credit score and a sound financial history, making eligibility a consideration.
PACE Financing
PACE (Property Assessed Clean Energy) financing is a financing option available to homeowners who want to make energy-efficient upgrades to their homes. Here are some of the pros and cons of PACE financing:
Pros:
PACE financing allows homeowners to make energy-efficient upgrades to their homes without having to pay for it upfront. PACE financing is repaid over a long period of time, which can make the cost of the upgrades more manageable. Financing is tied to the property, not the homeowner, so if the homeowner decides to sell the property, the PACE financing obligation is transferred to the new owner.
Cons:
PACE financing typically has higher interest rates than traditional financing options and is secured by an assessment lien, which means that the PACE financing obligation takes priority over other liens on the property.
Financing is typically limited to energy-efficient upgrades such as solar panels, insulation, and HVAC systems.
Companies offering PACE financing include Ygrene, Renovate America and GreenSky.