The Property Assessed Clean Energy (“PACE”) financing program is a tool for homeowners who are looking to finance home improvement projects related to energy-efficiency and safety. Many homeowners encounter conflicting points of view while deciding if PACE financing is right for them. We have compiled the top five myths and realities of PACE financing to help homeowners better understand the program.
Myth #1 The PACE program is a government-imposed tax, loan, or subsidy
Reality: Property Assessed Clean Energy (PACE) financing is not a government-imposed tax, loan, or subsidy. Land-secured financing districts, also called special assessment districts, have been used in the United States for more than 100 years to pay for infrastructure improvements deemed to be in the public interest. PACE financing allows state and local governments to extend the use of land-secured financing districts to fund energy-efficient and safety related home improvements on private property,1 such as: installation of solar panels, impact or energy-efficient windows and doors, replacement of HVAC system, roof replacement or repair, seismic retrofitting, hurricane protection, etc.
PACE funding is made through public-private partnerships with one or more PACE providers, also known as PACE program administrators. PACE financing enables homeowners to obtain long-term financing at competitive fixed interest rates. Participation in the program is 100% voluntary. Homeowners located in participating communities who use PACE to finance home improvements, elect to get a voluntary tax assessment on their property that will be removed once the financed amount is paid back in full.
Myth #2 PACE financing increases the property’s taxes
Reality: PACE financing does not increase the property taxes, but does increase the amount of the biannual or annual tax payment. The amount a homeowner borrows under the PACE program for their home improvements is added as a separate line item in their property tax bill. The financed amount is due under the same schedule as the property taxes are (biannual or annual). Once the financed amount is paid back in its entirety the line item will no longer appear in the property tax bill.
For non-escrowed mortgages or homes that are paid off, it is recommended that the homeowner divides the annual PACE payment into 12 monthly installments and puts that amount aside every month to avoid payment shock. The PACE provider can typically supply the homeowner with an estimated monthly amount.
Myth #3 PACE financing increases the risk of foreclosure
Reality: A research study led by the Institute of Market Transformation (“IMT”), as well as some other studies, have shown that the home improvements financed with PACE have had a positive impact in the housing market by increasing the value of the homes and benefited homeowners offsetting financing costs by cutting energy and water bills.2
Additionally, the underwriting standards for PACE are not as lenient as consumers and other entities may perceive. PACE providers review important risk information such as the homeowner’s mortgage payment, property tax payment, and bankruptcy history; loan-to-value (LTV); combined loan-to-value (CLTV); and income to determine if the applicant qualifies for PACE financing and for how much.
According to the IMT research study, homes that have an energy-efficiency improvement have a substantial and significant reduction in the default risks. Homeowners that invested in energy-efficiency improvements were about one-third less likely to default than those who did not.2
Myth #4 PACE financing is for homeowners with a bad credit score or low-income
Reality: The average FICO score of PACE customers is 705,2 which is consistent with the national average of 703. A FICO score between 670 – 739 is considered good.3 The average income for a non-PACE homeowner and a PACE homeowner is also consistent.2 Both of these variables indicate that PACE financing is not biased towards a particular credit or income profile. PACE financing is not contingent solely on an individual’s credit history which makes it an attractive and popular choice for long-term financing for energy-efficient or safety related home improvements to a wider range of consumers.
While most energy-efficient or safety related home improvements can be financed through non-secured loans, personal loans, a home equity loan, a Home Equity Line of Credit (“HELOC”), or other traditional property-secured loan. PACE financing allows homeowners who do not fit in the box of traditional financing underwriting standards to get 100% funding to complete the PACE eligible home upgrade projects they need or want, without any money out-of-pocket.
Myth #5 It is difficult to sell a home that has a PACE assessment
Reality: A data-supported analysis does not exist to indicate that PACE has had a negative impact on home sales. In the contrary, a data-supported analysis conducted by the Journal of Structured Finance indicates that PACE has a positive impact on home sales.4
The study found that when comparing PACE with non-PACE homes, the home improvements financed through PACE generally increased the home value by at least as much as their costs (compared to only 60% for other types of home improvements). What this means is that PACE has a net positive impact on the resale value of the home.4
PACE financing is attached to the property and not the borrower which means that it can stay with property at the time of sale. Buyers or lenders may require the remaining balance to be paid off, which in often times is negotiated as part of the home buying process. To avoid unpleasant surprises, homeowners should treat their PACE assessment in a similar way as a home equity loan, second mortgage, or other property-secured debt which must be paid off at the time of sale.
Click here or call 866-891-6879 to contact an authorized PACE provider in your area. An expert PACE financing advisor will answer all of your questions and provide you with a FREE and No-Obligation quote.
PACE financing is subject to credit approval. Underwriting requirements may vary and are subject to change. Additional underwriting requirements and restrictions apply. PACE financing may be required to be repaid upon refinance or sale. Homeowners should perform due diligence before selecting a home improvement contractor. PACE financing is private financing that must be repaid in full. PACE financing is not a government subsidy.
- Berkeley Lab. Residential Property Assessed Clean Energy In California: Feasibility of Studying Impacts on Mortgage Performance and Energy Savings. https://emp.lbl.gov/sites/all/files/lbnl-1003964.pdf
- Institute for Market Transformation (“IMT”). Research Report: Home Energy Efficiency and Mortgage Risks. https://www.imt.org/wp-content/uploads/2018/02/IMT_UNC_HomeEEMortgageRisksfinal.pdf
- Experian. What is the Average Credit Score in the U.S.? https://www.experian.com/blogs/ask-experian/what-is-the-average-credit-score-in-the-u-s/
- The Journal of Structured Finance. PACE Loans: Does Sale Value Reflect Improvements?https://www.pacenation.org/wp-content/uploads/2016/10/JSF_Winter_2016_PACENation.pdf