Homeowner's Guide to Going Solar

Updated: June 13, 2024

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If you're a homeowner looking to reduce your environmental impact and save on utility bills, consider transitioning to solar energy. Solar energy is a sustainable and clean energy alternative that uses sunlight to generate electricity through solar panel technologies. These panels convert sunlight into electricity, which can then power household appliances and devices. According to a survey by the Pew Research Center, 8% of American homeowners have already adopted solar panels, with an additional 39% seriously considering the transition to solar power.

Before the transition, understand how solar panels work for your home and the factors involved. Each solar panel system varies in output guarantees, leasing arrangements, maintenance costs and other factors. This knowledge will help you make informed decisions and align your choices with your homeownership goals and values.

Cost of Home Solar Panels

The cost of installing solar panels for your home can vary significantly based on several factors. On average, the cost is around $25,000 before incentives. Solar panel installers typically use the price per watt to estimate the cost of a system. To estimate the installation cost, start by calculating your electricity needs. You can determine your electricity needs by checking your total energy consumption on your electricity bills. This number will help you figure out how many solar panels you'll need.

The U.S. Bureau of Labor Statistics notes that the average cost per watt in the U.S. as of April 2024 is approximately $0.173. If you need around an 11-kilowatt (kW) solar panel system to cover your electricity usage, your expected cost is around $1,906. You can also contact an installer for a precise quote because they usually provide free estimates.

However, this is not the total cost. Even with the cost-per-watt figure, you need to consider several additional factors to get a true cost estimate. The location where you live can significantly affect installation costs due to differences in electricity rates, sunlight exposure and local incentives. It also depends on factors like the shape of your roof, which can affect installation difficulty and cost. If your roof needs repairs, this means additional costs.

Potential Financial Benefits of Solar Panels

Switching to solar power offers homeowners significant financial advantages, including consistent energy bill reductions and access to numerous tax benefits. Below are some of the key benefits of installing solar panels:

Savings on Energy Bills

Using solar energy to generate electricity can provide clean, renewable energy and lower utility bills by reducing dependence on traditional grid power. An acre of solar panels installed to replace natural gas can reduce carbon dioxide emissions 208 to 236 times more annually than an acre of forest. Additionally, solar panels can help you reduce your electricity expenses by utilizing clean energy, offering an excellent return on investment while benefiting the environment.

You can estimate your potential energy savings from solar panels using the PVWatts Calculator from the National Renewable Energy Laboratory (NREL). Enter your location and basic details about your solar system to calculate the annual electricity output in kilowatt-hours. Multiply this output by your current electricity rate. For instance, if you pay 12 cents per kWh and your panels produce 800 kWh monthly, you could save $96 on your power bill. Check the U.S. Energy Information Administration (EIA) database for your state's average electricity cost.

Home Insurance Discounts

Certain homeowners insurance companies also offer minor discounts on premiums for eco-friendly homes, and solar panels might make you eligible for these savings. However, the extent of your savings depends on factors like local sunshine, electricity rates and net metering policies.

Federal Tax Benefits

Various solar incentives and benefits can reduce the cost of your solar panels. In the U.S., solar panel systems qualify for a 30% federal tax credit, known as the Investment Tax Credit (ITC). This credit allows you to deduct 30% of your solar project costs from your taxes in the year you install the panels.

For example, if you spend $20,000 on an 8 kW solar system, the federal tax credit would be $6,000. Remember, the ITC is a tax deduction, not a refund or rebate. If your tax liability is too low to use the full credit in one year, you can carry over the unused portion to the next year. You cannot claim the federal tax credit if you finance your panels through a solar lease or Power Purchase Agreement (PPA).

State and Local Incentives

Many states and local governments also offer tax benefits for solar panel installations, including additional credits, rebates and exemptions. These incentives vary by location, so you should research what's available in your area. Local benefits complement federal programs, allowing for greater cost savings when combined with the federal tax credit.

Property Tax Exemptions

Some areas offer property tax exemptions for the increased home value from solar panel installations. For example, if you install a $25,000 solar system on a $300,000 home, your property taxes will still be based on the original $300,000 value. According to the Solar Energy Industries Association (SEIA), 36 states provide property tax exemptions for solar energy. In New Jersey, this exemption applies as long as the system is used for on-site electricity, heating, cooling or general energy needs.

Sales Tax Exemptions

Sales tax incentives are available in 25 states, exempting the purchase of solar energy systems from state sales and use taxes. All sales, storage and use of components in Colorado for producing alternating current electricity from renewable sources and solar thermal systems are exempt from state sales and use tax.

Performance-Based Incentives (PBI)

Some regions offer PBIs, which provide financial rewards based on the actual energy production of solar panels. These incentives are usually calculated in $/kWh and are paid based on the energy produced over a specific period.

Additional Incentives

Some states also offer non-tax solar incentives, such as cash rebates to lower upfront costs or net metering policies that let you sell excess solar energy to the local utility company for bill credits. The Database of State Incentives for Renewables and Efficiency (DSIRE) is a helpful resource for filtering incentive programs by state and technology, covering solar power, other renewables and energy efficiency projects. Your solar installer can also assist in finding and applying for available incentive programs.

Increased Property Value

Homes with solar panels often have higher property values. Studies show that properties with solar installations command a premium during sales. According to Zillow Economic Research, homes with solar panels sold for 4.1% more than those without, which translates to an additional $9,274 for the median-valued home in the U.S. A 2022 REALTORS and Sustainability Report found that most agents and brokers said properties with solar increased perceived property value, with 77% indicating that homes with solar panels are available in their markets.

Energy Independence and Security

Homeowners with solar panels and energy storage systems can protect themselves from power outages. Solar with battery backup ensures that essential appliances continue running during extreme weather conditions and grid disruptions. Additionally, solar energy reduces dependence on fossil fuels, mitigating the impact of future energy cost spikes.

Potential Financial Drawbacks of Solar Panels

While solar panels offer key benefits, they may not be suitable for everyone. There are some potential drawbacks that you should consider as a homeowner:

Maintenance Responsibility

Solar panels require routine upkeep, including cleaning and occasional inspections, to ensure optimal performance. As the homeowner, you are responsible for any maintenance issues.

Compatibility Issues

Existing solar systems might not be compatible with your current electrical setup. If upgrades or modifications are needed to integrate the solar panels with your home's electrical system, this could lead to additional costs.

Increased Roof Repair Costs

If your roof develops a leak or other issue, you will likely need a professional to remove some or all of the solar panels to address the problem, increasing the repair costs.

Weather Dependency

Solar panels' energy production is affected by weather conditions. They rely on sunlight, so periods of cloudiness or gloomy weather can reduce their efficiency and energy output. Expect less output during the winter when days are shorter. Additionally, solar panels do not produce electricity at night.

How to Buy Solar Panels for Your Home

Once you've decided to transition to solar power, consider the following tips to help you get solar panel installation that matches your needs and budget.

1. Evaluate Solar Panel Options

Examining the varied solar panel options available to you maximizes the likelihood of obtaining an efficient, cost-effective solar energy solution for your home. Solar panels vary widely in cost, typically reflecting the quality of materials and technology.

When choosing panels, consider their efficiency ratings, which indicate how much sunlight they can convert into usable electricity. Higher efficiency panels and premium inverters can increase costs but also improve energy output and reliability.

2. Ensure Durability and Warranty

Solar panels are designed to withstand various weather conditions and typically last 25 to 30 years. A comprehensive warranty can protect against equipment failures or faults. Manufacturers often provide product warranties that cover equipment and manufacturing defects and performance warranties that guarantee a certain output level over the warranty period.

3. Choose the Right Installer

Select an installer with a strong track record in your area. Established knowledge and skill assure the quality of your installation. Prioritize installers with the necessary credentials, ensuring compliance with industry standards for correct and safe installation. Pay close attention to pricing and warranties and collect multiple bids to compare prices, warranties and services. Don't hesitate to negotiate to get the best possible deal.

4. Explore Financing Options for Solar Energy

How you pay for solar can impact your total cost and long-term savings. There are several ways to pay for home solar. Examine each option to find the best one that suits your financial condition and helps you save the most.

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    Cash Purchase:

    Paying for a solar panel system upfront with cash provides the highest long-term savings. This option allows you to take full advantage of the federal tax credit and other incentives, maximizing your return on investment by eliminating interest payments.

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    A solar loan is ideal if you prefer not to pay for the system upfront. Many solar loans do not require a down payment, allowing immediate savings. With a solar loan, you own the system and can claim available incentives. While this option involves monthly payments, it generally results in significant long-term savings compared with leasing.

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    Solar Lease

    Leasing solar panels can be a great option for lower upfront costs. Monthly lease payments are typically lower than current utility rates, offering a more affordable way to harness solar energy. However, leasing does not provide panel ownership or access to tax benefits.

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    Power Purchase Agreement (PPA)

    A PPA is similar to a lease but differs in that you pay a fixed rate for the electricity produced by the panels rather than a fixed lease payment. The solar provider retains ownership of the panels and is responsible for maintenance and monitoring.

    PPAs typically require no upfront payment, making them an accessible choice for many homeowners. However, like leases, PPAs do not provide ownership of the panels and result in lower long-term savings.

What to Know When Buying a Home With Solar Panels

Several factors need careful evaluation when purchasing a home with existing solar panels. The age and condition of the panels, as well as existing agreements like lease contracts, can heavily influence your decision. Deciding if purchasing a house with solar panels depends on your situation and preferences. Asking these important questions will help you make a more informed decision:

How old are the panels, and what is their condition?
Are there any warranties or maintenance contracts in place?
Is the system owned or leased?
Who was responsible for installing the solar panels?
What is the condition of the roof?
What is the average monthly energy production?
What are the maintenance needs?
What does the production guarantee entail?
Are there local restrictions or limitations on the use of solar energy?

Securing a Mortgage for a Home with Solar Panels

Obtaining a mortgage for a home with solar panels can involve additional considerations. Your lender may have specific concerns about your ability to make lease payments for the solar system if you do not own the panels outright. Here are some important points to keep in mind:

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    Affordability of Lease Payments

    Ensure you can afford the remaining payments on the solar panels, if it's a lien. This is in addition to your other debts and financial responsibilities.

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    Lender Requirements

    Communicate the details of the solar panel financing to your lender. This includes whether the system is leased. Your lender requires this information to evaluate your eligibility for the remaining payments.

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    Contract Transfer

    Understand the terms of the current solar panel contract. Sometimes, the contract can be transferred to the new owner, while a new contract must be drafted at other times. Different companies have different policies, and the terms may change based on factors like your credit rating.

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    Consult With Experts

    Work with your real estate agent and a solar specialist to navigate the complexities of purchasing a home with solar panels. They can help you understand the financial implications and ensure a smooth mortgage application process.

Additional Resourceson Solar Panels

Here are some valuable resources to help you decide about buying a home with solar panels. Each offers detailed information and tools to guide you through the process.

  • Department of Housing and Urban Development (HUD): HUD provides resources and programs to support energy-efficient home improvements. It also offers information on financing options and incentives for making your home more energy-efficient.
  • Energy Star: Energy Star, a program run by the U.S. Environmental Protection Agency and the Department of Energy, certifies energy-efficient products and practices, including solar panel systems.
  • National Renewable Energy Laboratory (NREL): NREL's resources include a solar calculator that helps estimate the energy production and cost savings of a solar panel system based on your location. It's a useful tool for homeowners considering solar energy.
  • Office of Energy Efficiency and Renewable Energy (EERE): EERE offers a wealth of information on energy efficiency and renewable energy technologies. Their website provides resources and tips for homeowners looking to make their homes more energy-efficient and adopt renewable energy solutions like solar power.
  • Solar Energy Industries Association (SEIA): SEIA offers extensive resources on solar energy, including industry reports, policy updates and consumer guides. Their website provides information on the benefits of solar power, how to go solar and the latest trends in the industry.
  • U.S. Department of Energy Solar Energy Technologies Office: SETO supports research and development to improve solar technologies' affordability, reliability and performance. Their website offers educational resources on solar energy, including guides for homeowners and detailed information on the latest advancements in solar technology.

About Nathan Paulus

Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.