What Happens to Your Solar Loan if You Sell Your Home?

Selling a home when you have a solar loan is not uncommon, but it requires several steps to be successful. While solar panels can save you money on energy bills, boost your home’s value and attract environmentally conscious buyers, an unpaid solar loan can introduce financial and logistical challenges. Many homeowners are surprised to learn that solar loans typically don’t transfer automatically with the property, and failing to address this early can lead to stalled deals or reduced buyer interest.

In this article, we’ll walk you through everything you need to know about selling your home with a solar loan, from understanding your loan type to navigating real estate disclosures, tax implications, and buyer negotiations. By the end, you’ll be equipped with the knowledge to make your home sale as seamless and successful as possible.

In This Article:

• Understanding the Types of Solar Loans
• Can You Transfer Solar Loan to Buyer?
• Common Scenarios when Selling Home with Solar Loan
• Preparing to Sell Home with Solar Loan
• How Solar Affects Home Value & Marketability
• Tax Considerations when Selling Home with Solar Loan
• Tips for Selling Home with Solar

Understanding the Types of Solar Loans

The first step in managing a solar loan during a home sale is knowing what kind of loan you’re working with. Not all solar loans are created equal, and the structure of your financing can have a big impact on how you sell your home. Solar loans generally fall into two main categories: secured and unsecured. The distinction between these can influence your ability to transfer ownership cleanly and whether or not a lien appears on your home title. In addition, the terms of the loan and the provider may limit or open up your options for resolving the loan during a sale.

Secured vs. Unsecured Loans

Secured loans are tied to your property, often through a Uniform Commercial Code (UCC-1) filing. Solar lenders place these liens to protect their interest in the solar equipment, and it becomes part of the public record and can appear on your property title. These liens can sometimes delay or complicate the closing process, but this is often the result of confusion about the UCC-1 filing. If a mortgage lender is unfamiliar with UCC-1 filings and solar loans, they might assume this is lien on the property and hastily deny the home loan. However, this confusion can be cleared up by discussing the true nature of the solar loan and outlining ways to resolve the situation.

Fortunately, there are solutions to prevent or resolve potential delays or confusion related to solar loans and liens. As discussed later in this article, the new homeowner can assume the solar loan or the current homeowner can pay off the solar loan, which releases the lien.

Unsecured loans, however, are granted based on the borrower’s creditworthiness and are not tied to the property. These loans don’t show up on the title, making them easier to navigate during a home sale. That said, the borrower still remains personally liable for the debt.

Loan Providers and Terms

Solar loans are available from a variety of lenders including traditional banks, credit unions, and solar-specific financiers like GoodLeap, Sunlight Financial, Mosaic, and Dividend Finance. Terms typically range from 10 to 25 years, with fixed or variable interest rates and sometimes deferred payments. Understanding your loan’s interest rate, monthly payment, and remaining balance will help you determine the best course of action before listing your home.

PPA/Lease vs. Loan

It’s important to note that power purchase agreements (PPAs) and solar leases are not loans and follow a different set of rules. While they also present challenges during a sale, they often involve transferring a long-term service contract rather than debt. This article focuses specifically on solar loans.

Can You Transfer Solar Loan to Buyer?

Many homeowners wonder whether their solar loan can be transferred to the new buyer when selling their home. The good news is that, in many cases, solar loans are transferable, provided certain conditions are met. This flexibility can facilitate the home-selling process and make properties with solar installations more attractive to potential buyers.

Most Solar Loans Are Transferable

Most solar loans are designed with transferability in mind. Solar lenders often allow the transfer of solar loans to new homeowners, subject to specific criteria. The primary requirement is that the prospective buyer must meet the lender’s creditworthiness standards. This typically involves a credit check and, in some cases, the payment of a processing fee. For instance, lenders like Dividend Finance and Sungage Financial have established procedures to facilitate such transfers, ensuring a smooth transition for both sellers and buyers.

Considerations for Solar Home Buyers & Sellers

While transferring a solar loan can be advantageous, it’s essential to consider the implications for both parties:​

Processing Time: The transfer process can take several weeks, so initiating it early in the home-selling process is advisable to avoid delays in closing.

Buyer’s Mortgage Approval: The buyer’s ability to assume the solar loan may impact their mortgage approval process. Lenders will factor in the additional loan payment when assessing the buyer’s debt-to-income ratio, which could affect the loan terms or approval.​

Loan Terms: The terms of the existing solar loan, such as interest rates and remaining balance, will transfer to the buyer. It’s crucial for buyers to review these terms to ensure they align with their financial plans.​

Exceptions to Transferability

It’s important to note that not all solar loans are transferable. For example, loans secured through Property Assessed Clean Energy (PACE) programs are typically tied to the property tax bill and may not be transferable in the traditional sense. In such cases, the loan may need to be paid off before the sale, or the buyer must agree to take on the PACE assessment.

Common Scenarios When Selling a Home with Solar Loan

Depending on the flexibility of your lender, the buyer’s financial situation, and the remaining loan balance, there are several ways to handle a solar loan when selling your home. Each option comes with its own pros, cons, and procedural considerations.

Scenario A: Pay Off the Solar Loan at Closing

This is the most straightforward and preferred option for many sellers and buyers when they or selling or buying a home with a solar loan. In this case, the outstanding solar loan is paid off during the closing process using proceeds from the home sale. The system then transfers to the new homeowner debt-free. This clean transfer can boost buyer confidence, simplify negotiations, and prevent any surprises during the title search. The escrow company typically handles disbursement directly to the solar lender.

Scenario B: Roll Remaining Balance Into Sale Price

Another option when selling a home with a solar loan is to adjust your listing price to reflect the added value of the solar system. If your home appraises high enough, the buyer’s mortgage can cover the solar loan balance. This allows the seller to pay off the solar loan at closing without losing out financially. However, this strategy works best in competitive markets and requires clear documentation of the system’s value and energy savings to justify the higher asking price.

Scenario C: Buyer Assumes Loan (If Allowed)

If the lender permits it and the buyer agrees, they may formally assume the solar loan. This requires approval from the loan provider and may slow down the closing timeline. It can also affect the buyer’s loan-to-value (LTV) ratio and debt-to-income (DTI) calculations for their mortgage, potentially limiting what they can afford or qualify for. However, this is still a viable option for those wanting to sell or buy a home with a solar loan.

What solar loan options do you qualify for? Contact Green Ridge Solar today to find out! We partner with specialized solar lenders who can get you the most competitive rates and help you save even more with solar. Chat with our solar financing experts today!

Preparing to Sell a Home with a Solar Loan

Selling a home with solar involves more than just pricing and staging—it requires thorough preparation and communication. Being proactive about the solar loan can make the difference between a smooth transaction and a last-minute delay. Here are several proactive steps a seller can take when selling a home with a solar loan that can make the process smoother and easier.

1. Contact Your Loan Provider Early

Reach out to your solar loan provider as soon as you decide to sell. Request a payoff statement and ask about transfer options or any applicable prepayment penalties. This will help you make informed decisions and avoid surprises later.

2. Gather Documentation

Assemble a packet that includes your solar loan agreement, installation receipts, warranty information, system specs, and performance data (like annual energy output and solar savings estimates). This demonstrates transparency and can reassure potential buyers.

3. Disclose Details to Real Estate Agent & Potential Buyers

Make sure your agent understands the solar loan situation so they can market the property accurately. Proactive disclosure builds trust with buyers and gives them time to factor solar into their mortgage planning.

4. Coordinate with Escrow Company

Your escrow officer will need to account for the loan payoff in the final settlement. If there’s a lien on the property, it must be cleared before transfer of ownership. Start this coordination early to keep the process moving.

How Solar Affects Home Value & Marketability

Solar panels can be a major selling point when selling a home, especially as energy costs continue to rise. Homes with solar panels can produce their own electricity, which is a large monthly expense for most households. Being able to save money by not paying huge power bills each month leads to home buyers paying a premium for solar panels.

Studies Show Solar Can Increase Home Value

Believe it or not, solar panels have been shown to increase home and property values.

Multiple studies have shown that homes with solar panels sell for more money. These include a study from the real estate website Zillow, as well as a Department of Energy-sponsored study by the Lawrence Berkeley National Laboratory.

The study by Zillow found that homes with solar panels sold for an average of 4% more than homes without solar panels.

The study by the Lawrence Berkeley Laboratory found similar results, with the average solar households selling for $15,000 more than households without solar panels.

Solar as a Selling Point

Buyers are increasingly interested in energy-efficient homes, especially homes powered by solar panels. Highlighting the benefits of your solar system—such as reduced utility bills, environmental impact, and potential for energy independence—can make your home stand out. Providing recent energy bills that show significant savings can help validate your asking price.

Tax Considerations When Selling Home with Solar Loan

When selling a home with solar panels, it’s not just the financing and ownership of the system you need to consider—there are also important tax implications. Solar energy systems often come with incentives like the federal solar tax credit (Investment Tax Credit, ITC), which can significantly reduce installation costs for the original owner.

However, these benefits don’t always transfer to the new homeowner, and depending on how your solar installation was financed, there may be impacts on your tax liability at the time of sale. From capital gains considerations to the treatment of unused tax credits, it’s essential to understand how your solar investment affects your bottom line when it’s time to move.

Solar Tax Credit (Investment Tax Credit, ITC) Implications

The federal solar tax credit (Investment Tax Credit, or ITC) currently allows homeowners to deduct 30% of the cost of a solar installation from their federal taxes. This can lead to substantial savings, especially for large solar systems. However, the solar tax credit is non-transferable—only the homeowner who originally purchased and installed the system is eligible to claim it.

If a homeowner hasn’t used the full value of the solar tax credit in the first year, they can carry forward the unused portion to future tax years, provided they still have a sufficient tax liability. It’s important to note that if a homeowner sells their home before claiming the full credit, they can continue applying the remaining credit to their tax returns as long as they still meet IRS eligibility requirements. However, the buyer of the home will not be able to claim any portion of the solar tax credit.

Learn all about the 30% solar tax credit (ITC) and see if you are eligible.

Potential Capital Gains Impact

Installing solar panels can also affect your capital gains taxes when you sell your home. By increasing the cost basis of your property (i.e., the amount you originally invested), the cost of the solar system can help reduce the taxable profit when you sell. For example, if you spent $20,000 on a solar system and included that cost in your basis, your taxable gain upon selling could be reduced by the same amount. This could potentially save thousands in capital gains taxes, particularly in markets where home prices have significantly appreciated. This benefit is especially valuable if you’ve lived in the home for fewer than two years and don’t qualify for the full capital gains exclusion. Always consult a tax advisor to confirm how this strategy applies to your individual situation and to ensure the solar upgrade was properly documented in your cost basis.

Tips for Selling Home with Solar

The more proactive you are about resolving your solar loan and keeping all parties informed, the smoother your home sale will go. A well-prepared approach not only prevents delays but can also position your solar system as a major asset that adds value to your property. Buyers today are increasingly savvy and eco-conscious, but they still need clear communication and reliable information to feel confident in their purchase. Here are a few practical strategies to help you navigate the process effectively:

Be transparent and timely in communication: Communicating early and often with all parties—including your real estate agent, lender, buyer, and escrow company—prevents misunderstandings and builds trust. Make sure everyone understands the current status of the solar loan, how it will be resolved, and what steps are being taken to ensure a smooth transaction.

Pay off the loan before listing: Settling your solar loan prior to listing your home for sale can eliminate a host of complications, including issues with title clearance, buyer hesitation, or disruptions in escrow. When a home is marketed as having an “owned” solar system, it sends a strong signal to potential buyers that the home is energy-efficient and debt-free.

Hire a real estate agent with solar experience: Not all agents are familiar with the ins and outs of solar ownership. Working with someone who understands solar systems and how to present them to buyers can greatly improve your experience. They’ll know how to highlight savings, navigate required disclosures, and speak confidently about your solar system’s benefits.

Show potential buyers hard data: Prepare a packet of information including energy usage reports, recent utility bills, solar performance data, and warranty coverage. Buyers want to see real, measurable savings. If you’ve participated in a net metering program or received solar incentives, include that information too. The more information and data you have to show the value and savings of your solar panel system, the better odds and better offers you will get when selling your home.

Selling a Home with a Solar Loan can be Easy, Profitable

Selling your home with an outstanding solar loan may seem intimidating at first, but with proper planning and the right approach, it doesn’t have to be. Understanding your loan type, communicating clearly with all stakeholders, and being proactive about documentation and payoff options will streamline the process and help you highlight the value of your solar investment. In the end, a solar-powered home—especially one that’s debt-free—can be an appealing and marketable feature that adds both value and peace of mind for future homeowners.

If you’re preparing to sell a solar-powered home, consult your lender, work with a knowledgeable agent, and take control of the process from the start.

To learn more about the benefits of solar, contact Green Ridge Solar. Our solar experts can answer all your questions about solar incentives, tax benefits, and more. We can help navigate solar incentives and hunt down every tax credit, discount, rebate, etc. that you qualify for. Contact us today!

Want to know how much you could save with solar? Use our Solar Calculator to estimate your solar savings.