New Financing Method Based on Property Taxes (PACE) is Bankrolling Billions in Home Improvement

If you’re interested in installing a renewable energy system or making energy efficiency improvements on your home, you might need financing. A PACE loan can help. 

What are PACE loans?

Property assessed clean energy (PACE) loans allow state and local governments to fund the cost of energy efficiency and renewable energy projects. After the project is complete, the home will be assessed to include the value added by the improvement. Homeowners repay the loans over time in the form of higher tax bills.

What if I move?

PACE loans are tied to a particular property, so if you finance an energy efficiency project or a renewable energy system using PACE and then sell the home, the new homeowner will usually assume the loan. In some cases, a home buyer might not want the PACE loan obligation and the seller could remove it (by, for instance, removing the home’s solar panels). 

Many homeowners, unsure of how long they’ll be living in their home, are wary of investing in solar or other renewable energy systems that sometimes require a decade or more before yielding a return on investment. By tying the loan directly to the property, PACE loans encourage homeowners to invest in home improvements immediately without fearing that they won’t be in the home long enough to see any savings.

What kinds of improvements can I make to my home using PACE?

The types of improvements covered by PACE loans varies from place to place, but eligible projects typically must improve air quality or meet other clean energy criteria. For instance, homeowners might choose to install solar panels or low-flow toilets; add insulation; or replace their windows, roofing, or heating and cooling systems.

Most PACE loans cover projects that cost at least $2,500. If the proposed improvements will increase the home’s value by more than 15 percent, you might not be able to secure a PACE loan. 

Where are PACE loans available?

PACE loans are currently available in more than 30 states and the District of Columbia. California has the most active PACE program; Florida, Maine, Vermont, and Missouri also have growing programs.Click here for a list of states where PACE is available.

Who is eligible for PACE loans?

Eligibility varies from place to place, but most eligible PACE customers must own their own home and not be in bankruptcy. If you’re not up-to-date on your property taxes or if you’ve made more than one late mortgage payment in the past year, you might not be able to get a PACE loan. You could also have trouble getting a PACE loan if it and the other loans on your property exceed a loan-to-value ratio of more than 97 percent. 

How long are repayment terms for PACE loans?

Repayment periods vary, but they typically last 10 to 20 years. But according to PowerScout, a California-based solar startup, some PACE loans are repaid over periods as long as 30 years. Typically, the larger your loan, the longer your repayment period. 

Are PACE loans risky?

PACE loans don’t require credit approval and are less regulated than other types of financing. While there are many legitimate purveyors of PACE loans, some (especially door-to-door salespeople and home improvement marketers) can be problematic. 

The property assessment that precedes a PACE loan also puts a lien against your house, which means that in the event of foreclosure or default, the property assessment must be paid for before the mortgage. For these reasons, PACE loans can be risky for seniors and people living on a limited or fixed income. 

How can I obtain a PACE loan?

If you’re eligible for a PACE loan and ready to save money on your energy bill, contact your local energy or housing authority. They’ll direct you to reliable resources and trustworthy contractors that can help you make your home more sustainable. 

And remember, as with any loan, it’s important to shop around, get multiple quotes, and carefully read the terms of your loan. If you don’t realistically think you can manage to repay it, look for other financing options.

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