Buying a House with Leased Solar Panels: The Pros and Cons

How do leased solar panels work?

When a homeowner doesn’t have the financial ability to purchase a solar energy system outright but still want to avail its benefits, they are left with four options for financing their solar panel system – leases, solar loans, power purchase agreements (PPA), and PACE (property assessed clean energy) financed systems.

Let’s understand them in detail.

Solar lease

When the solar panel system is purchased on a lease, the homeowner doesn’t own the system. Just as in the case of a car, homeowners need to make monthly lease payments to whoever advanced the money for the system. 

When you are buying a home with leased solar panels, you can either get the leasing arrangement transferred to you or insist that the seller clear the balance payments. Typically leases are for 20-25 years. This means, if the solar panel installation is a fairly new one, it may not be financially possible for the seller to pay off the balance. They will be more disposed towards transferring the lease to you.

Again, solar leases are not all the same. It is important to understand the terms of the leasing arrangement. You should pay attention to the period of the lease, the remaining number of installments, the monthly repayment amount, and what is the arrangement for servicing and repairs. 

Monthly lease payments can be fixed-rate or varying. With the varying lease arrangement, payments may go up in the future.

If you are comfortable with the lease terms, the process of transferring the lease is simple enough. The solar company that is leasing solar panels may run a credit check on you and if they are satisfied, then shift the lease to you.

Solar loan

Similar to a car loan, a solar loan helps homeowners to avail the benefits of solar power with a minimum upfront cost. And like all loans, solar loans involve monthly payments.

Solar loans can be unsecured or secured. The unsecured solar loan is linked to the homeowner and as the new homeowner, you won’t be liable for monthly payments. However, the seller may add the balance loan amount to the home price. 

This means you may have to pay more for a solar-equipped home. On the other hand, you get to enjoy the benefits of solar energy without the hassles of installation. Again, you also need not worry about monthly payments. 

Before you go ahead with this, you should get an expert to inspect the solar panels and get them valued. If you feel the additional price of the house is worth the extra expenditure, you can go ahead with the purchase.

A secured solar loan uses the home or the solar panels as collateral. This means in case of default in repayment, the lender can take possession of the security. A lower interest rate is the advantage of choosing a secured solar loan.

Power Purchase Agreement (PPA)

These are very similar to leasing solar panels. In PPA, homeowners continue to make monthly payments to the solar company owning the system. However, the monthly amount is not fixed. It is based on the solar energy generated by the system. This would be somewhat similar to how your utility bill is calculated.

The term of PPA is typically 15 or 20 years. And, once the period is over, the solar company will remove the system.

You should understand the terms of PPA and the balance period. As long as you are willing to take on the monthly payment, you can get the PPA transferred to you.

Financing with PACE 

Unlike any of the financing options described above, PACE financing for solar panels is linked to the property and not to the homeowner. This means you need to be more cautious when buying a house with a PACE-financed solar panel system.

The repayment plan for PACE financing is not through monthly installments like a solar loan, PPA, or solar lease. The amount advanced by PACE for the purchase of solar panels is repaid through the property tax paid annually.

This means when you buy a solar-paneled home installed with a PACE-financed system, you assume the liability of annual payment of property tax. You may feel that this is not a good idea. Before you reject it, it would be advisable to dig deeper and understand more about it.

Whether the solar panel system is covering your energy needs fully or partially, you will be saving big on your energy bills annually. Paying a part of this savings as additional property tax would be worth it if you are keen on having a solar panel system in the first place.