Buying a solar energy system requires careful consideration and investment. Leasing is a bit easier, but over the long term owning your system is difficult to beat.

Getting Your Panels Paid

Cash

It is best to purchase your solar electricity system outright. After-tax credits, the cost ranges from $15,000 to $20,000 and can dramatically reduce the power bill by 70 to 100 percent, depending on the size and orientation of the roof. It typically takes five to seven years for most systems to pay for themselves.

Home Equity Loan

The most cost-effective way to finance your solar panel purchase is to use a home equity loan or a home equity line of credit. These options have low-interest rates (currently about 3 to 5 percent) since your home serves as collateral. You can deduct the interest you pay. There is a fixed interest rate on equity loans and ranges from 5 to 20 years in length. The rate changes every ten years.

Solar Loan

Solar loans can be unsecured or secured. An unsecured loan doesn't require collateral, and the interest is not tax-deductible. You can find the best solar loan rates by checking directly with banks and credit unions rather than through solar installers. Beware of high origination fees. Fannie Mae also offers its HomeStyle Energy Mortgage Program to consumers for solar system installations when they buy a new house or refinance.

Why Leasing Isn't a Good Idea

Residential solar systems can be expensive upfront, and a leasing company's sales pitch can be very appealing: Pay little or nothing and save hundreds of dollars per year on average. Leasing can also seem more simple than buying since there's no need to hunt down an installer and arrange to finance; you sign on the dotted line. As a result, it's not surprising that 72 percent of those who installed solar systems in 2020 did so via leasing or another type of third-party arrangement (in theory you'll save since your lease payment and the electric bill would be lower). However, the reality is not quite as sunny as it seems.

You Will Save a Modest Amount

Leasing a solar energy system provides far fewer savings than buying them outright (they also miss out on federal tax benefits and local incentives). Almost all leases contain an escalator clause that increases payments by 3% per year, further eliminating savings. With a 3 percent escalation, if you're paying 12 cents per kilowatt-hour in year one, you'll be paying 18.2 cents in year 15. If the price of energy does not increase as quickly as the lease payments, your savings may evaporate.

Roof Control Is Gone

Leasing companies are likely looking to maximize their profit, so you might end up with more panels than you want and they might be installed in highly visible spots without regard to aesthetics, such as facing the street. To avoid this, check the final design and installation prior to signing the lease. The final mock-up may differ from the original.

Leases Can Scare Buyers Away

If you put your house on the market before the lease has expired (usually 20 years), you will either need to buy out your lease or the buyer will have to assume it, which some buyers are reluctant to do.

Occasionally, solar leasing companies move their systems from one home to another. It could cost $500 for an initial audit and another $500 to transfer the panels if the leasing company permits it. The utility and local landmarks commission, as well as the condo or homeowner's association, may need approval. Plus the new house must be able to accommodate the old system.