Creative Financing Options

Upon learning the cost of a solar system that will serve their needs, many San Diego homeowners decide to pull money from an underperforming investment (e.g. their brokerage account) in order to buy their system. Solar costs much less than it used to. And they know that solar will offer them a much better return on their money than they can find elsewhere.

But, for those of us who do not have the cash to cover the cost of solar, there are an abundance of finance options. The easiest method is often to sign up for a loan through your solar contractor, many of which will qualify you online within minutes. Some of them offer fantastic rates of 2.99% or 3.99%, or even 18 months “same as cash.” Does this sound too good to be true? Well, it is. Solar contractors must pay fees to the loan provider for the privilege of offering these loans. Those fees are often thousands of dollars per loan, and are of course passed on to the homeowner in the form of higher solar contract prices.

Other loan options require more effort on the part of the homeowner, but this effort can translate into significant savings. Here are some of these options… let us know if you think of others that we’ve forgotten:

  1. Equity loan / HELOC/ Cash-out refinance:  this is a loan against your home equity. This might require small fees upfront and maybe even an appraisal, and it may take some time to complete the process. But the interest rate can be quite attractive. And for many homeowners, the interest portion of the loan payment may be tax-deductible. Sometimes homeowners borrow against a second home or a rental property, rather than the home on which the solar will be installed.
  2. Collateral loan:  Some homeowners are able to use their retirement account or other asset as collateral for a loan. This is done either through your bank or credit union, or through the company holding your investment accounts (certificates of deposit [CDs], brokerage accounts, life insurance, etc.). Alternately, some homeowners have even used their automobile or motor home as collateral in order to finance their solar purchase (i.e. car loan).
  3. Property Assessed Clean Energy loan (PACE):  This is a relatively new category of loan, available in many (but not all) regions. The loan is taken on behalf of the home, and paid back on the homeowner’s property tax bills. The main benefits are that the loan does not require the homeowner to meet FICO or debt/income thresholds in order to qualify, and it does not show up on the homeowner’s credit report. That means that it will not affect your ability to borrow for something else. There may also be some tax benefits. The main downsides are that there are significant fees that are rolled into the loan, the interest rates are relatively high, and the accrued interest between annual loan payments can be significant.
  4. Credit union solar loan:  As distinct from other solar loans, some credit unions offer no-fee or low-fee solar loans to homeowners at very reasonable rates. At the time this blog was posted, the author is unaware of any solar loans available to homeowners through banks, and is aware of  only a few solar loans offered through credit unions. However, the ones that do exist can offer quite favorable terms. The downside is that the approval process may require several emails or even a trip to the credit union, and may take a couple of days instead of a couple of minutes (depending on the credit union). Some homeowners use no-fee loans of this type as a short-term loan to cover just the portion of the solar contract price that will come back to them in the form of a tax credit — don’t forget that there is currently a 30% solar tax credit that is set to start phasing out after 2019!
  5. GRID Alternatives:  If your family is below specific income thresholds, you may qualify for a free solar installation from the government through the SASH Program. GRID Alternatives is the administrator of this program, so contact them to learn more. But be very cautious when looking at this option, as there are a ton of disreputable companies pretending to be affiliated with the government or the utility, and that use misleading language to lend themselves an air of authority.
  6. Get creative!:  Some homeowners have gotten loans with which to buy solar through special programs offered by their employer, because of their military background, or through a club or professional affiliation. Homeowners will sometimes borrow money from a family member or a family trust, if they know they’ll be able to pay it back quickly. Or sometimes they can even finance a portion of the solar contract on a credit card — again, if they know they’ll be able to pay it back quickly.

A solar installation on your home can save you a lot of money. Most San Diego area homeowners can obtain loans with which to finance their solar installation that offer much lower payments than they’ll be saving each month. That is, they’re cash-flow positive from Day 1! If you’d like to look at a solar proposal specifically designed for your home and your electric needs, or if you’d like to explore further which finance option makes the most sense for your family, please contact the experts at San Diego County Solar.

 

 

Disclaimer:  When considering options that may include tax benefits, we highly advise speaking with your tax professional regarding your ability to capture them.