Know the solar contract before buying a home

There are a lot of reasons to install solar panels in your home. They save you money on energy bills, you often receive subsidies from your energy company, and you receive a tax credit from the federal government. But they are expensive to install, typically ranging from $10,000 to $40,000. This expense means that many homeowners choose to finance solar panels or, in some cases, never fully own the panels—they lease them from the solar company. 
To understand how solar panels can affect you when you buy a home, first you need to know the different ways homeowners can get solar panels. 

Cash

This is by far the safest and most cost effective way to purchase solar panels. If a homeowner buys them outright for cash, they can end up reducing their energy bill by upwards of 90 percent depending on the location of their home. While this option is the most expensive upfront (it typically runs $15,000 to $20,000 after government tax credits), homeowners can save up to $30,000 over the course of the panels’ lifespan. 

Personal loan or home equity loan

Personal loans work like any normal bank loan. A homeowner has to qualify for a certain amount, they lock in an interest rate and loan term, and they agree to make monthly payments on the loan for that term. Home equity loans are similar except they allow homeowners to use their home as collateral to obtain the loan. However, if they default on a home equity loan, the bank can seize the home to recoup their money. 

Solar Loan

Many banks and utility companies now offer specific loans for buying and installing solar panels. These loans work like any other bank loan. If a homeowner opts for a solar loan, they can get a secured or unsecured loan. Secured loans require the homeowner to put up collateral on the loan, usually the house. Unsecured loans don’t require any collateral but usually have more fees and are not tax deductible. 

Lease

Also known as a power purchase agreement, when a homeowner can’t afford to buy the panels, they can lease them from the solar company for little or no money upfront. The solar company continues to own the panels and rents them to the homeowner for a fixed term, usually 20 years. They handle all maintenance on the panels and receive all the available tax incentives from the government. In exchange, the homeowner receives a discount on energy, although a much lower discount (10 to 30 percent) than they would from buying the panels. 

Buying a home with owned or financed solar panels

You need to take extra care into reading the solar contract when you make an offer on a house with solar panels. Depending on how the homeowner acquired the panels, you could find yourself on the hook for them. 
If the panels were bought for cash upfront, they should be included in the cost of the house and shouldn’t cause any additional issues. But don’t assume. They are technically the property of the homeowner, and if it isn’t explicitly stated in your contract that the house comes with the solar panels, they could remove them after they sell. Similarly, if the panels were bought using a conventional loan, the seller will be responsible for paying off the loan when they sell the house to you if they plan to leave them. They can also choose to keep the panels when they move. 
If they took out a home equity loan for the panels, the lender technically has a lien on the house, which can cause issues when you try to secure a mortgage. The seller will have to clear the loan in order to remove the lien and sell the home to you. 

Buying a home with leased solar panels

Things get trickier when the solar panels are leased under a power purchase agreement. Be sure to read the solar lease contract thoroughly and talk to the seller about what they plan to do about their solar lease before you put in an offer. 
A typical solar lease has a 10- to 20-year term and the lessee can only get out of it if they transfer the contract to the new homeowner, they pay out the remainder of their contract, they buy the panels at the current market rate, or they move the panels to their new home. If they transfer the contract to you, you would be on the hook for the remainder of the lease. Most solar panel lease contracts have a clause that lets the company increase the interest rate up to 3 percent per year, which can alter your debt-to-income ratio and put your mortgage in jeopardy. 
Before you buy a home with a power purchase agreement, make sure you read the fine print and work out a deal with the seller. If you choose to take on the contract, make sure you know what you’re getting yourself into. When in doubt, always talk to your real estate agent about your options.