Property Assessed Clean Energy (“PACE”) is a unique option for homeowners to finance home improvements related to safety and energy-efficiency with no money out-of-pocket. The residential PACE program is currently available in various states but it seems to be a popular financing choice for California and Florida homeowners.
PACE financing can be a good fit for some homeowners, but not all. Not everyone who wants to make energy or safety related home upgrades can afford a big upfront investment or is able to get the financing they need based on their credit score, not having sufficient home equity for traditional financing, or other unique situations. For these homeowners, PACE financing offers a new option.
If you’re looking to better understand if PACE financing is right for you, below are the top three pros and cons of PACE financing.
The Pros of PACE financing
- $0 Money Down
- PACE is not a home improvement loan
- Work must be completed by a registered contractor
With PACE financing homeowners can finance 100% of the cost of their eligible upgrades without an initial investment, and the benefits start immediately. Energy related home improvements such as solar panels, energy-efficient windows and doors, energy-efficient roofing, energy-efficient HVAC, etc. can reduce monthly utility expenses. This is particularly important in the state of California where residential electricity costs are 49% higher than the national average of $13.30 cents per kWh.1
PACE is not considered a loan but rather a voluntary tax assessment; therefore, qualifying for the PACE financing program might be quicker than qualifying for traditional home improvement loans such as: cash-out mortgage refinance; Home Equity Line of Credit (“HELOC”), Home Equity Loan, Personal Loans, Credit Cards, etc. which typically require a minimum credit score, a generous amount of home equity, a specific debt-to-income ratio, and other factors.
In order to obtain PACE financing the property must be located in a participating community and have sufficient available home equity (generally 10%, but it can vary). The PACE program does not require a minimum credit score to qualify. The max financing amount is generally determined using the available home equity and the homeowner’s income. There are additional program requirements that need to be met.
Click here to contact an authorized PACE provider in your area who can confirm your eligibility at No-Obligation.
The home improvement contractor must be registered or register with the PACE financing provider, also known as the PACE program administrator, of your choice prior to completing your home improvement project in order to receive payment. Contractors must have a valid and active contractor’s license with their state's Construction Licensing Board in order to participate in the PACE financing program.
The funds from PACE financing will be paid directly to the home improvement contractor upon satisfactory completion of the home improvement project as evidenced by submitting to the PACE provider a Completion Certificate signed by at least one of the homeowners and the contractor. This process provides homeowners peace of mind knowing that their contractor will not disappear with their down payment without completing their project or the homeowner having to pay their contractor for a project that was not completed in a good-workmanship manner.
The Cons of PACE financing
- Limited Program Availability
- Payment Shock
- Difficulty selling the property with PACE financing
PACE programs are established at the state level first by enacting legislation that authorizes the adoption of PACE assessment districts which are then administered at the local government level, what this means is that program participation may vary from city to city within the same state.
The financed amount is collected and secured in the same manner as any other special assessment against the property – through the property tax bill. For homeowners who pay their property taxes outside of an escrow account having to pay their PACE assessment once or twice per year, depending on their county’s property tax schedule, may be difficult.
It is recommended that homeowners who obtain PACE financing and do not have an escrow account divide their annual PACE assessment payment into monthly payments and put that money aside to avoid a payment shock. The PACE provider can generally provide you with an estimated monthly payment.
PACE financing is unique because the balance on the financed amount stays with the property in the form of a voluntary tax assessment. This could be problematic at the time of sale because the new buyer or the buyer’s mortgage lender may be reluctant or not willing to take on the voluntary tax assessment.
Homeowners often choose to pay off the PACE assessment balance themselves, to avoid the negotiation hassle or potentially losing the purchase offer. In real estate everything is negotiable: a seller can ask a higher price to account for the paid-off improvements, or accept a lower price for a property that comes with the temporary higher expenses.
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.