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Is the PACE program right for you?

home_improvement_roofUpdated by Craig Berry

Property Accessed Clean Energy (PACE) is an easy and effective way for home and business owners to finance energy efficiency and renewable energy projects. Not only can certain energy efficiency improvements be paid over time, ideally they can even be paid with the savings generated by the improvements.

Who is eligible for PACE?

PACE is a voluntary program in which homeowners receive financing from a local government to cover the up-front cost of qualified energy improvements, and in exchange, repay the up-front cost through a special assessment on their property tax over a period of years or decades.

Almost any building is eligible for PACE financing, including homes, offices, hotels, shopping centers, restaurants and other retail properties and garages.

PACE eligibility may vary from state to state so you contact your local PACE program for a list of eligible properties and improvements.

Is PACE financing tax deductible?

PACE financing is different from standard home improvement loans or home equity loans in a few different ways, particularly when it comes to installing solar panels.

  • Rather than paying the loan back in monthly installments, homeowners pay their PACE funds back once a year for fixed term (typically 10 - 20 years) through an assessment that is added to their property tax bill.
  • While funding amounts and interest rates for traditional loans are determined by your credit worthiness, PACE financing amounts are determined by the tax capacity of your property (i.e. the value of your home). For homeowners who don't have the credit to access satisfactory loan options, PACE financing is a great alternative for receiving the financial benefits of solar without up-front costs.
  • Should you install solar panels with the help of PACE financing, you immediately begin to enjoy the financial benefits of solar panels without having to pay anything up-front. This is because the money saved in electricity costs throughout the year should be substantially higher than the annual increase in your property taxes. You should always benefit from the financial gains of your solar investment.
  • If you were to sell your home before your solar energy system is paid off, the remaining amount of money owed transfers to the new homeowner. Unlike other loans or leases where transfers are negotiated separately, PACE financing is attached to the property itself, not the owner. New owners may not mind, as they can enjoy the financial benefits of solar panels as well.

PACE program successes

There have been many PACE pilot programs that have demonstrated that PACE properties have lower foreclosure rates, increased energy savings and other benefits consistent with the initiative's overall policy objectives.

Initiated as pilot programs starting in 2008, today 33 states and the District of Columbia have passed PACE-enabling legislation, and 19 states plus DC have operating PACE programs.

While the Federal Housing Administration (FHA) initially warned investors against buying mortgage loans with PACE assessments attached to them, the Administration's recent actions show it's changed its tune. FHA is now encouraging more municipalities to pursue PACE financing legislation, making PACE an option for those with FHA mortgage loans.

PACE limitations

PACE financing options aren't without their drawbacks. PACE financing is only available to property owners. Renters aren't eligible for PACE financing.

Portable items such as screw-in lightbulbs and standard refrigerators cannot be used with PACE financing. Generally, PACE isn't meant for investments below $2,500.

PACE financing can require a dedicated local government staff, and may require high legal and administrative setup obligations.

Mortgage lenders may resist PACE financing due to claims to the property may be subordinated to the unpaid assessment amount should the property go into foreclosure.

What is the PACE program and is it right for me?

Residential PACE allows homeowners to finance energy efficiency, renewable energy and other eligible improvements on their homes using private sources for capital.

As of 2017, over 150,000 homeowners have made $4 billion in energy efficiency and other improvements to their homes through PACE financing. Typical home improvements include replacement of hot water heaters, failing heating and cooling systems, air sealing and insulation; ENERGY STAR doors, winding roofing; ENERGY STAR appliances and water conservation.

Improving energy efficiency in your home is a worthy goal and can be accomplished with or without borrowing. Explore PACE financing as one way to make certain home improvements affordable.

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