Solar PV & Renewable Energy prices

Innovative way to Finance Your Solar System: FHA loans and home equity lines of credit

If you are a clean energy enthusiast and always look for ways to make your home greener, there has never been a better time to switch out of the fossil fueled electric grid and instead power your home with solar energy. In the last few years there has been a dramatic drop in solar panel prices, making the equipment affordable for a lot more homeowners. Understandably, even with the lower prices, spending 10-15K out of your pocket is still a big expense for many people.

image of Residential Solar panels

The good news is that there are actually a number of ways you can finance this system and get all the benefits without strenuous upfront costs. Its not the typical solution of renting or leasing the solar system, these solutions actually allow you to OWN the system: Home Equity Line of Credit or FHA residential solar loan. If you qualify for either one of these programs, you will not only have immediate access to clean solar energy, but will also be able to make money in the long run by selling your access solar power back into the grid. Here is some information you need about both the Home Equity Line of Credit and the FHA Residential Solar Loan to figure out whether either one of these solutions is right for your situation.

Benefits of Solar video:

Another great reason to outfit your home with solar panels that many people are not aware of is that current research shows that by adding any energy improvement to your home, you are actually increasing the value of your home. How much is the actual increase? Well, any energy improvement you make, adds 20 times the yearly energy savings in value. This means that if your solar system saves you $1000 on electricity every year, the added value to your home is $20,000. This is significant and you will be hard pressed to find an energy home improvement like solar power, that not only adds value to your home, but also produced a priced commodity year after year.

image of Installing Solar Panels on home roof

Home Equity Line of Credit/Loan for solar installations

A home equity line of credit (HELOC) or a home equity loan (HEL) allows you to take advantage of the equity that you have in your home to make additional home improvements or use this money to finance a car or have it as a back up in the time of need. Both are essentially a second mortgage. One of the most attractive things about these loans is their low interest rate, which is typically much lower than ones you can get with credit card cash advances or other conventional bank loan, because it is secured against your home.

The primary difference between Home Equity Lines of Credit and Home Equity Loans is that the first allows you to draw money up to a predetermined amount whenever you need money. There is a minimum payment each month with the option to pay off as much as of the line as you want. With a Home Equity Loan, you receive a lump sum of money and have a fixed monthly payment that you repay over a predetermined amount of time. Both loans offer a few different financing options; some offer rates and payments that are fixed over the life of the loan, some are fixed for the first five years and then adjust every five years thereafter. Consult a loan specialist to determine which option would save you the most money. Moreover, some institutions, such as Affinity Credit Union, offer special Green Home Equity Line of Credit for green home improvements such as solar panel installation. This credit line has the additional benefit of a .25% APR rate reduction, your choice of terms and fixed monthly payments.

How to Qualify for solar loan

To qualify as well as the amount you can borrow is determined based on your credit score, the amount you still own on your home, your other debts, the value of your home, and your credit history. With your application, you will be typically asked to submit proof of home ownership, proof of income and proof that at least 20% of the value of your home is payed off.

image of Solar Financing - $0 down

Looking for a Loan

When looking for a home equity line of credit, there are a couple of ways you can go: you can find your own home equity line of credit either through your bank or through an independent home equity loan provider, or you can have the solar company that you plan to work with to connect you with a home equity line of credit provider that they work with and trust. Another option is to use your existing home equity line of credit, if you have enough funds to finance your solar system. In your search, be sure to look for programs that offer no closing costs, no application charges and no pre-payment penalties. You can use various online solar calculator tools to estimate cost of new solar PV system installation, and financing options

The great thing about home equity lines of credit is that due to surging numbers in solar panel installations, many home equity line products are starting to take into account the value that the solar energy system adds to your home when they calculate the cumulative home to value ratio. This means that as a homeowner, you have a greater chance of qualifying for a home equity line of credit. Also, keep in mind that currently interest rates are at an all time low, so getting the home equity line now and locking in your rate will allow you to have low monthly payments on your loan.

FHA-backed residential solar loan

If you are in a situation where you have no equity in your property and therefore cannot qualify for a home equity loan/credit, you can still finance your solar system with a FHA-backed residential solar loan. The FHA-backed loan allows eligible homeowners to make energy efficient home improvements of their choice, which include: installation on insulation, duct sealing, replacement doors and windows, HVAC systems, water heaters, geothermal systems and solar panels. With this loan, you can be approved for credit with or without home equity and an appraisal will not be needed. The loan is available in increments up to $25,000 for a single family home or $12,000 per unit (up to 5 units), up to 20 years with no prepayment risks. The interest rates on this loan are higher than those on a home equity line, and are fixed at between 6.95%- 13.95%. You need to carefully calculate how much your monthly payments will be and how they will compare to your savings on electricity as well as long term profits you will make, to see if this financing options makes sense. With an FHA loan, you will get 100% upfront funding, which means that you will not have to spend a penny out of your pocket to purchase and install the solar system.

How to Qualify

You do not need perfect credit to qualify for an FHA loan, as the federal government is committed to helping eligible homeowners to make energy improvements to live greener and healthier lives. To qualify your credit score can be as low as 650. Other factors that will determine your eligibility are proof of income, proof of home ownership, and credit history. Decisions are made as fast as 1-2 business days.

Looking for a Loan

Currently, you can get an FHA loan directly through the solar installer. Look for solar installers in your state that can quickly and easily do all the necessary paperwork for you. For example in MA, you can get this loan through a solar systems installed, BrightStar Solar. Another option is to find an FHA approved independent lending institution, such as Quicken Loans, Stonegate Mortgage Corporation, HomeStreet Bank and many others that offer this loan.

Related Solar Articles:

Solar Leasing and PPA (power purchase agreements) – get Solar Panels installed on your roof for free, and pay reduced rate for green electricity!

Levchik (Leo) is a renewable energy activist from Boston, MA, and has been involved with alternative energy and green construction since 2004.

In 2009, Leo and his green roofing company ( sponsored Boston’s Solar Decathlon Team, providing materials and installation labor to install a cool white roof on the top of Curio home (Joint effort by Tufts University and Boston Architecture College) – more info about the project here.

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Written by Levchik B

Posted on June 29th, 2012 at 7:26 pm

Posted in Solar Prices

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