Water heaters are very expensive to buy and are in fact one of the most expensive appliances that you will buy for your home. You need to therefore understand the various types of water heaters that are available before you go out and buy the first one that you see. The first thing that you need to decide on is which fuel source you will be using for your water heater. The two most popular sources available to homes are either gas or electric. There is a third fuel source, but you do have to live in a hot climate, and that is solar power. Solar heaters are very energy efficient and can reduce your water heating bills by as much as 90%. These heaters are very expensive though. You may be able to apply for a government grant or tax rebate on these solar heating appliances to help towards the cost of a new one.