Can you transfer a solar loan?

Can you transfer a solar loan to a new homeowner?

Yes, most solar loans are transferable, according to Mark Licon, sales manager at Sunlogix Energy. The main exception is PACE (Property Assessed Clean Energy) financing, which places a second lien on your property. Typically, you have to pay this off before selling.

Every solar loan lender handles transfers differently. “In some cases, the lender may permit the buyer to assume the loan, meaning they take over the existing terms and simply step in and start repaying,” John Nichols, a licensed real estate agent at LoKation, said. “Other times, the buyer might need to secure a new loan to pay off the original balance, essentially refinancing the system.”

Successful transfers depend on buyer qualification. The new homeowner must agree to take on the loan and pass credit verification. Most lenders require a credit score of around 650, similar to the original loan application standards.

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Solar loan transfer process

Here’s a step-by-step guide to the solar loan transfer process, from contacting your lender to finalizing the transfer.

1. Contact your lender: “To get the process going, the seller would have to contact the solar lender and request the transfer documents,” Licon advised.

2. Buyer qualification: “Lenders will require the new homeowner to undergo a credit evaluation, just like for any other loan,” Nichols explained.

3. Complete paperwork: Both parties must submit the lender’s required documentation confirming the buyer’s willingness to assume the loan under existing terms.

4. Finalize the transfer: Once approved, the lender updates their records, and all parties sign the necessary documents. This officially transfers responsibility to the buyer.

Challenges of transferring a solar loan

It’s possible to transfer a solar loan, but certain obstacles can make the process challenging.

• Buyer qualification issues: Potential buyers must meet credit standards. Without sufficient credit, they may not be able to assume the loan.
• Legal implications: Failed transfers may require loan payoff at closing, reducing your sale proceeds. Some solar loans create title issues that you must resolve before selling.
• Restrictive lender policies: Some lenders prohibit transfers entirely or impose conditions that complicate the process. Review your loan agreement before listing your home.
• Timing complications: Transfer paperwork and approvals can delay closing. This could derail sales with tight deadlines.
• Warranty transfer issues: Depending on your manufacturer and agreement terms, your solar system warranty may not automatically transfer with the loan.

Out of these, lender restrictions and buyer creditworthiness are the primary hurdles you’ll face. “Lenders’ credit requirements range between 600 and 700 FICO scores to qualify,” Licon said.

Another challenge is the presence of dealer or origination fees. These typically range from 13% to 30% of the loan amount, which can substantially impact the transfer’s financial viability. Some lenders build these fees into the loan terms, while others may charge them separately. Ask about these costs upfront.

Pro tip

Request transfer requirements from your lender before listing your home. This preparation gives you time to address potential issues and set realistic expectations with prospective buyers.

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Alternatives if you can't transfer a solar loan

If you can’t transfer your solar loan to a new buyer, consider trying these alternatives:

• Include loan payoff in the home price: Increase your asking price to cover the remaining loan balance. Be prepared to justify the premium with documentation about the system’s value and performance.
• Negotiate with buyers: Offer seller concessions or closing cost assistance to offset the solar loan payoff. This makes the transaction more attractive while resolving the loan issue.
• Pay off the loan before selling: This option is often the best bet if you want a smooth, easy home sale. “[You] can call the lender and pay off the solar loan [early] with no prepayment penalties,” Licon explained. Ask your lender for a payoff quote and settle the balance from your savings or home equity.
• Refinance your loan: Many lenders recognize solar systems as valuable home improvements that boost home value. This could qualify you for better terms or allow you to roll the solar debt into a new mortgage, creating a cleaner path to sale.

In rare cases, you might arrange a separate agreement where the buyer makes payments to you instead of the solar lender. Private seller financing requires proper legal documentation and comes with risks. Only consider this option with trustworthy buyers after consulting with a real estate attorney.

Impact on home sale and value

A solar system can add value to your home, but an outstanding loan could deter some buyers. While the system itself represents an asset, buyers unfamiliar with solar benefits may see only the additional debt — not the energy savings that offset it.

You’ll likely have the smoothest experience selling your home if you pay off the loan before listing. Many buyers appreciate the clean energy benefits without the complications of third-party agreements. They may view owned solar systems as valuable home upgrades, similar to new HVACs or finished basements, according to several real estate studies.

If you must sell with an existing loan, take comfort in knowing it’s easier than selling with a lease or power purchase agreement (PPA). “It’s a much [simpler] transfer because it’s not third-party owned,” Licon noted. In his experience, customers prefer loans because they involve less hassle and are more straightforward.

Pro tip

Disclose the system details (make, model, size and age) to build trust with potential buyers. Also, Licon recommends inspecting the system before listing to ensure it works perfectly. This prevents surprises down the road that could derail your sale.

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