Investing in solar energy is one of the smartest things you can do for your family. The experts say solar strength can give you power 24 hours a day during all seven days of the week. You can also cut your electricity bills to almost nothing and get various credits and deals for making the switch.
You’ll need to apply for financing to pay for the equipment you’ll need to switch to solar energy, however. The following situations can throw a monkey wrench into your financing.
1. Low Credit Score
One of the biggest causes of solar loan denials is a low credit score. Lenders typically look for FICO scores in the 640 range or above. Some smaller institutions may accept a lower credit score, however. Each time you apply for lender credit, your score gets a few points lower because of the inquiry. Thus, it would help if you tried to get preapproval before applying for any loans.
You can take several steps to improve your credit score. One thing you can do is review your credit reports for errors. You can dispute any issue with the credit bureaus if you see anything wrong. They will have 30 days to review the dispute and decide whether to delete or change the information. Any erroneous account that gets erased can boost your score from 20 to 50 points. Balance deductions can also remove points from your credit. You can also pay down a few of your obligations. That will cause a rise in your credit score, but you must be patient to see your payments reflected. Typically, it takes one to three months to see the fruit of your responsible credit actions. You should check your credit score and make a few phone calls before you attempt to apply for a loan with any provider.
2. Financial Obligations
Any huge financial obligation can affect your ability to gain approval alone. For example, a current legal fine can cause you to have not enough disposable income for the lender’s liking. For instance, analog drug use can land you in jail and leave you with a $1,000 fine to pay. That $1,000 fine could knock you out of the income qualification bracket.
Having an obligation such as child support or alimony could also affect your ability to get a loan. Divorces can be tough, so you should ensure you aren’t in the middle of one when you apply. Divorce.com says contested divorce battles can drag on for several years. That means you may have to pay a lawyer to represent you for that long, and you might end up with either of the obligations mentioned above.
3. High Debt-To-Income Ratio
A high debt-to-income ratio can cause you to get disapproved of a loan, even if you have a glowing credit payment history. The lender will consider your debt a barrier to paying for new loans. You’ll need to get your DTI down lower than 36% to improve your profile.
4. Short Employment Term
Lenders will also review the amount of time you have been working on your current job. You should stay with one employer for at least two years for the best results. Some lenders will consider two years of employment with various employers as long as no large gaps are in between those periods.
5. Short Residency
A short residency period can also cause the lender to get nervous. It’s a good idea to be in your home for at least two years before applying for any loan except for a mortgage. Even then, you should have a history of two years in the locale where you live.
6. Not Enough Documentation
You must provide documentation to any lender to prove who you are, where you live, where you work, how much income you earn, etc. Any insufficiencies with that paperwork can cause trouble for you when requesting funds. To avoid problems, ask what paperwork the lender requires and gather it before you apply.
Now you know some of the challenges you might face getting a loan for solar energy equipment. It would be in your best interest to review your finances and start working on a solution ahead of time. You can get approved if you stay ahead and get your paperwork and payment capabilities in order beforehand.