How to Finance Solar With a Home Equity Loan or HELOC

You have decided solar makes financial sense for your home. Now comes the second question: how do you pay for it? A typical residential solar system costs $15,000-$25,000. The federal 30% solar tax credit (Section 25D, also called the Residential Clean Energy Credit) remains in effect through 2032 under the Inflation Reduction Act. That means the after-credit cost of a $20,000 system is $14,000 — and how you finance that net amount determines whether solar is a great investment or just an okay one.

Most people consider three options: cash, a solar loan through the installer, or a home equity loan or HELOC. Each has tradeoffs. This guide breaks down when a home equity loan or HELOC is the smartest choice — and when it is not.

Home Equity Loan vs HELOC: What Is the Difference?

Both use your home as collateral. Both offer lower interest rates than unsecured loans. But they work differently.

Home Equity Loan: A lump sum at a fixed interest rate, repaid in fixed monthly payments over a set term (typically 5-20 years). You get the full amount upfront and start paying immediately. Think of it as a second mortgage.

HELOC (Home Equity Line of Credit): A revolving credit line at a variable interest rate. You draw what you need, when you need it, and only pay interest on the amount drawn. Most HELOCs have a draw period (5-10 years) where you can borrow and make interest-only payments, followed by a repayment period (10-20 years) where you pay principal and interest.

For solar, a home equity loan is usually the better fit. You know the exact cost upfront, you want a fixed rate for predictable payments, and you need the full amount at once. A HELOC can work if you want flexibility — perhaps you are phasing the installation or combining solar with other home improvements — but the variable rate introduces uncertainty.

The Four Financing Options Compared

| Factor | Cash | Solar Loan | Home Equity Loan | HELOC |

|--------|------|-----------|-----------------|-------|

| Typical rate (2026) | 0% | 4.5-8.5% | 6.5-9.0% | 7.0-9.5% (variable) |

| Tax-deductible interest | N/A | No | Yes | Yes |

| Dealer fees hidden in price | No | Often 15-30% | No | No |

| Approval based on | N/A | Credit score | Equity + credit | Equity + credit |

| You own system immediately | Yes | Yes (usually) | Yes | Yes |

| Monthly payment | None | Fixed | Fixed | Variable |

| Total cost over life | Lowest | Highest (often) | Mid-low | Mid (depends on rates) |

The Hidden Cost of Solar Loans

Here is what most people miss: solar loans offered through installers frequently include dealer fees of 15-30% that are rolled into the system price. The installer marks up the system cost to cover the fee the loan company charges them, and you pay the inflated price over the life of the loan.

A system that would cost $20,000 cash might be quoted at $24,000-$26,000 with a solar loan. The interest rate looks competitive — maybe 4.99% or 5.99% — but the effective rate, accounting for the inflated principal, is significantly higher.

This is the single most important reason to consider a home equity loan. You borrow at a transparent rate with no hidden fees. You pay the cash price for the system. Even if the stated interest rate on the home equity loan is higher than the solar loan, the total cost is often lower because you are financing $20,000 instead of $26,000.

When a Home Equity Loan Wins

You Have Significant Equity

If your home is worth $400,000 and you owe $250,000, you have $150,000 in equity. Lenders typically allow you to borrow up to 80-85% of your equity. A $20,000 solar loan is a small fraction of your available equity, making approval straightforward and rates competitive.

You Want the Lowest Total Cost (Besides Cash)

Run the numbers on your specific scenario, but in many cases:

• Solar loan at 5.99% on $25,000 (inflated price): Total interest over 20 years = ~$17,000. Total cost = $42,000.
• Home equity loan at 7.5% on $20,000 (cash price): Total interest over 15 years = ~$12,000. Total cost = $32,000.

The home equity loan costs $10,000 less over the life of the loan despite the higher stated rate, because the principal is lower and the term is shorter.

You Want Tax-Deductible Interest

Interest on home equity loans and HELOCs is tax-deductible when the funds are used to buy, build, or substantially improve your home. Solar qualifies. If you itemize deductions, this effectively reduces your interest rate by your marginal tax rate.

At a 24% marginal tax rate, a 7.5% home equity loan has an effective rate of about 5.7% after the deduction. Solar loan interest is not tax-deductible.

You Want a Clean Transaction

With a home equity loan, you borrow from your bank or credit union, get the funds, and pay the solar installer the cash price. There is no middleman, no dealer fee, no inflated system cost. You negotiate the system price separately from the financing — which gives you more leverage on both.

When a Home Equity Loan Does NOT Win

You Do Not Have Enough Equity

If you bought your home recently, put a small down payment, or live in an area where home values have declined, you may not have enough equity to borrow against. Most lenders require at least 15-20% equity remaining after the loan.

You Plan to Move Soon

A home equity loan adds a lien to your property. If you sell within a few years, you need to pay it off from the sale proceeds. Solar increases home value (studies show an average of $15,000-$20,000 for a standard system), but if you are selling before the loan payoff, the math gets complicated.

You Can Pay Cash

If you have the cash available and it is not needed for emergency reserves or higher-return investments, paying cash eliminates all interest costs. Cash is always the cheapest way to buy solar. With the 30% federal Residential Clean Energy Credit (in effect through 2032), a $20,000 cash purchase effectively costs $14,000 after you file your taxes. Check whether your state offers additional credits that stack on top of the federal credit.

The Solar Loan Has No Dealer Fees

Some solar loans — particularly from credit unions and direct lenders — do not include dealer fees. If you can get a solar loan at a competitive rate on the actual system cost (not an inflated price), it may beat a home equity loan, especially if you do not itemize deductions.

How to Get the Best Rate on a Home Equity Loan

Check your credit union first. Credit unions consistently offer the best rates on home equity products, often 0.5-1.5% lower than major banks.

Compare at least three lenders. Rates vary significantly. Get quotes from your primary bank, a credit union, and an online lender (SoFi, Figure, or similar). Multiple inquiries within a 14-day window count as a single hard pull on your credit.

Ask about closing costs. Some home equity loans charge origination fees, appraisal fees, and closing costs that can add $500-$2,000. Many credit unions and online lenders waive these entirely. Factor closing costs into your total cost comparison.

Choose the shortest term you can afford. A 10-year home equity loan has a higher monthly payment than a 20-year loan but dramatically less total interest. For a $20,000 loan at 7.5%, going from 20 years to 10 years saves roughly $9,000 in interest.

EnergySage shows you the actual system cost — the price you would pay in cash — from multiple pre-vetted installers. Once you know the real price, you can shop for financing independently and avoid inflated solar loan pricing.

The Step-by-Step Process

1. Get solar quotes through EnergySage or from local installers. Ask for the cash price explicitly.
2. Apply for a home equity loan or HELOC at your bank, credit union, and one online lender. Compare rates, terms, and closing costs.
3. Run the total cost calculation for each option: (monthly payment × number of months) + closing costs = total cost.
4. Choose the lowest total cost option that fits your monthly budget.
5. Pay the installer the cash price using the home equity loan funds.
6. Claim your federal and state tax credits. The 30% Residential Clean Energy Credit (IRS Form 5695) applies to your system cost and is available through 2032. If your state also offers a credit (NY, MA, MD, SC, and others do), apply that refund as a lump payment on the loan to reduce principal and total interest.

Key Takeaways

• Home equity loans often beat solar loans on total cost because you finance the real price, not an inflated one
• Solar loans frequently include hidden dealer fees of 15-30% baked into the system price
• Home equity loan interest is tax-deductible when used for home improvements like solar
• Credit unions typically offer the best rates — always compare at least three lenders
• Cash is still the cheapest option, but a home equity loan is the next best thing for most homeowners

Related articles:

• Solar Lease vs Buy vs PPA
• Is Solar Worth It in 2026?
• How Long Until Solar Pays for Itself?

Disclosure: Some links in this article are affiliate links. If you purchase through them, we earn a commission at no extra cost to you. We only recommend products we have researched and believe provide real value.