How To Wrap The Cost of Solar Panels Into Your Mortgage

Most first-time homebuyers would love to find a home with solar panels already installed. They would switch them on to save themselves energy costs while doing the Earth a solid.

But the reality is, it’s hard to find a home with solar. In fact, only 3.7% of homes in the U.S. were solar-equipped as of 2020.

But what if you could finance the solar panels along with your home purchase – even your first home purchase? Certain mortgage programs let you do just that.

Compare multiple solar quotes from vetted local installers.

FHA Solar and Wind Technologies Mortgage

An FHA loan is a favorite among first-time buyers because it lets them put just 3.5% down and is lenient on credit scores and income levels.

But another benefit is that you can wrap the cost of an owned (not leased) solar panel system into your mortgage for whatever home you choose. No more wishing that you could find a home with solar panels in your price range. Find the home you want, then add a system.

Under FHA’s Solar and Wind Technologies option, you can finance a system costing up to 20% of the property’s value. You would pay just 3.5% down on the entire loan.

Here’s an example:

The home and the solar panels would be covered with one mortgage loan. You would have just one mortgage payment each month based on market rates when you purchase the home.

A bonus is that FHA allows you to qualify for a bigger home via its EEH Policy when you upgrade a home with energy-efficient upgrades. While you’re at it, you can finance other upgrades like kitchen and bath remodels via the FHA 203k loan.

To see if you qualify, get a pre-approval from an FHA lender specializing in energy-efficient loan options, then start shopping for homes in your price range.

Fannie Mae HomeStyle Energy Mortgage

Like FHA, Fannie Mae allows you to finance energy-efficient improvements at the time of home purchase.

Fannie Mae isn’t a lender; it’s a government agency that standardizes mortgage rules nationwide. Lenders that approve loans by Fannie Mae standards may offer the agency’s green mortgage.

With the HomeStyle Energy Mortgage, you can finance up to an additional 15% of the home’s purchase price for energy-efficient upgrades like solar.

For example, you could finance a system costing up to $30,000 on a $200,000 home.

In this case, you would end up with a $230,000 mortgage that covered your home purchase plus the solar panels that power it. But if the solar installation is less, you only have to add that much to your loan amount.

What’s even better is that Fannie Mae has plenty of homebuying programs requiring only 3% down. In the above scenario, you would pay just $6,900 down for the home and installed solar panel system.

Freddie Mac GreenChoice Mortgage

Freddie Mac, Fannie Mae’s smaller counterpart, also offers a green mortgage.

Its GreenChoice program is similar to others already mentioned: it allows you to buy a home and add up to 15% to the mortgage loan amount to cover energy-efficient upgrades such as solar panels. 

You can combine it with Freddie Mac first-time buyer programs such as HomeOne®, which requires just 3% down.

Is it cost-effective to roll solar panel costs into a mortgage?

On a monthly basis, your solar panel purchase is very likely to “pencil out.” That’s because your solar panels are financed at a low mortgage rate over 30 years.

For example, financing a $20,000 system at 6.5% over 30 years would increase your mortgage payment by about $126 per month. That gives you a predictable monthly electricity cost that happens to be close to the same amount as the average U.S. electric bill of $121 in 2021, according to the U.S. Energy Information Administration.

Of course, some areas like California and New York have much higher energy costs. And unlike utility electricity prices, which rose over 15% in 2022 alone, the solar payments built into your mortgage won’t increase over time.

In short, if you could reduce your bill by $126 in the example above, you get a system that costs you $0 per month. If your energy cost savings are more, you save money monthly. And even if you don’t break even on Day 1, there are many additional benefits to solar panels.

Compare multiple quotes from trusted installers to see how much a solar panel system would cost. Ask a lender how much it would add to your mortgage payment. Then, see if you can save at least that much monthly with solar panels. 

Also important: Make sure the home you’re buying is a good candidate for solar.

Does the home seller have to agree to add solar panels?

You might be wondering, when exactly do you add the solar panels? After all, not many home sellers are going to agree to add solar panels before the sale is a done deal.

The beauty of all three above programs is that the solar panels are installed after you close on the house.

The lender closes the loan and sets aside funds equal to the solar bid amount. You have a few months to get your solar contractor to install the system. The lender pays the solar contractor after the loan closes.

This helps you finance the cost of the solar panel system upfront, then use those funds to get everything installed after you officially own the house. 

Pro tip: It’s worth asking the seller to look at recent copies of their electricity bills to accurately size and price the solar system.

Where to find a lender

Not every lender will offer these “green mortgages” even if they offer standard FHA, Fannie Mae, and Freddie Mac loans.

However, an online search should reveal lenders who specialize in the energy-efficient loan process and can handle your request.

Ask your chosen lender which program is right for your income and credit level. Also ask how many of these loans they have done in the last six to 12 months. That will reveal if they are truly experienced with the programs.

Are solar panels in your future?

If you’ve been frustrated because you can’t find a home with solar panels – and you won’t be able to afford to add them after buying a house – you have a secret weapon as a homebuyer.

Thanks to generous mortgage programs now available, you could buy any home you want, then add solar panels.