Going solar is a big investment, but one that will start putting money back in your pocket the moment it's turned on. And just as there are many ways to design a solar energy system, there are many ways to pay for one. From cash purchases and loans, to choosing a solar lease, these different financing options each have their own advantages and disadvantages. Determining which one is right for you is crucially important and can dramatically speed up the ROI on your solar energy investment.
Depending on your unique situation, one financing combination will probably be more advantageous for you than another. Some offer better tax incentives in exchange for a slightly larger upfront investment, while others minimize upfront costs in exchange for reduced tax benefits. We recommend consulting with a qualified solar installation company to figure out what would work best for you, but this blog is a good starting point. Below we've put together a short breakdown of common ways homeowners pay for a solar energy system.
Cash Purchase and Loans
Cash purchases are the most common way to pay for a solar energy system and is what's typically recommend for homeowners, if financially feasible for them. Since the average return on an all-cash solar power system is 4-9 years, many buyers choose a cash purchase. A cash purchase also lets the homeowner reap the lucrative benefits of federal and state tax incentives. Currently, there's the 26% solar investment tax credit (ITC) and a $1,000 state of Arizona tax credit. The 26% ITC is only available through the year 2022, so acting sooner rather than later will help you secure the biggest and fastest return on your solar investment.
Low-interest loans typically offer the best financial return outside of an all-cash purchase. In general, it's typically recommended to finance only the necessary portion of the net cost after incentives are applied to achieve the best payback. A qualified solar installation company will help you determine what financing combination will be most ideal for your specific situation.
Purchasing or financing your solar energy system also comes with the added benefit of increasing your home's value. Zillow released a study that shows homes with solar sell for 4.1% more than homes without solar. The study states that for the medium-valued home, that translates to an additional $9,274! We've put together a guide on how to sell a home with solar, which goes over the many benefits you can reap.
If you don't want to commit to an initial down payment, leases are a great option. As typical with most capital leases, there are options for $0-down leases as well as ones that have an initial down payment to help reduce the monthly fees. With leases, the ultimate goal is to negotiate payments that are lower than your current monthly utility bills.
A potential barrier of choosing a solar lease is that it does require good credit, but it’s a viable option for those who who wish to avoid the initial investment or cannot take full advantage of available solar tax incentives. This makes leases a particularly a good option for retired homeowners or others who don't have a tax liability. Unlike full cash purchases or loans, leasing does not equate to immediate ownership, so the lessor claims the tax benefits.
Leases come with pros and cons. With leasing your solar energy system, you can take advantage of lower monthly payments, minimal to no required downpayment, and your lease is transferrable should you decide to sell your home in the future. Leasing your system, however, doesn't come with the full benefits as a cash purchase or loan. In the event you decide to sell your home, the new homeowner must qualify for the transfer of the lease.
In summary, there are many options or combinations of options homeowners can choose from when looking to go solar. A qualified solar installation company will help you determine which financing choice will be best for your unique situation and give you the best ROI. For other factors that go into a solar purchase decision, we invite you to download our free solar guide, Is Solar Right For You?