Financing a solar electric system in today's economy can seem a little overwhelming, but it's not.  You just need to arm yourself with a little knowledge.

Solar Financing Specialists
Many banks are not familiar with solar electricity systems and how this type of improvement increases the value of your home.  If you want, you can educate them on solar, but this can be frustrating (like banging your head against a brick wall).  If you don't fit their model, they just don't know how to deal with you and most of the time won't give you a loan anyway.  Banks usually are not very flexible. 

Instead, I recommend finding a financial institution that specializes in financing solar electric systems.  This way you don't have to educate them on solar.  They already know.  They will know what information they want up-front and the whole process will go much smoother. 

Most solar installers have a network of lenders that they work with because these lenders are good at solar improvement loans.  They are experts at getting the loan funded.  If you don't know where to start, just ask your solar contractor / installer if they know anyone who can help.  I bet you'll get at least a couple of great lending contacts. 

For financing you have lots of options.  Here are a few: 

HELOC's
Probably the easiest way to finance a solar electric system is with a Home Equity Line of Credit (HELOC).  That is, If you have one or can get one.  Banks are not as eager to extend this line of credit as they were a year or two ago.  HELOC's have become more difficult to get for many people, but not impossible.  Talk to the bank(s) that you have accounts with and see if you can get a HELOC.  Look at all of the terms especially, annual fees and interest rate.  The main criteria to get a HELOC are typically the equity in your home and your income.  The more equity and income, the better.  The equity is simply how much your house is worth minus how much you owe on it.  The bank wants to be assured they will be paid back. 

The way a HELOC works is:  If you have a HELOC you just write checks and the check amounts are added to the loan balance on your line of credit.  You then pay interest and make loan payments against this loan balance.  It is just a bank loan that you can borrow as you need it. 

Equity Financing
The next best option to pay for a solar electric system is standard "equity" financing.  This is just a regular home loan like your "first trust deed" or "second trust deed" loans.  These are often simply called your "first" or  "first mortgage" and  "second" or  "second mortgage".  The "first" is the primary loan on your home and the "second" is an additional loan that is often made to purchase the home or make improvements to it. 

A couple of options are:  You can take out a "second" loan if you do not have one, or you can refinance your "first" loan, your "second" loan, or both your "first and second" loans at the same time.  For most banks this will depend on the "equity" you have in your home.  The equity is simply how much your house is worth minus how much you owe on it (loans). 

How Much Equity Do I Need?
If you don't have much equity in your home, then getting either of the above types of loans will probably be difficult.  A good rule of thumb is that the total amount of your existing loans plus any new loans should not be above 75% or 80% of your home's value. 

Non-Equity Loans
There are also "non-equity" loans that are typically based on your income.  Actually, they are normally based on your debt to income ratio or just  how much you owe versus how much you make.  These usually have higher interest rates and are not always such a good deal, but shop around there may be a great loan for you.  Ask your banker. 

Interest Rates
The HELOC and standard equity financing have interest rates that are about what you should expect for a home loan.  These are some of your best interest rates available now.  To get an idea of these rates:  You can look for for these online (just search for home interest rates).  Or your bank can give you a current idea of interest rates.  Non-equity loans typically have much higher interest rates. 

Next week, I'll discuss Tax Bill Financing as another option.  You have probably heard rumors about this in newspapers and the Internet.  They are not really here yet, but are promising for the future. 

Robert Morse
BSEE, MSEE
SunCal Solar, Incorporated
www.SunCalSolar.com