No Upfront Costs and Accessible Financing
One of the most significant benefits of a Property Assessed Clean Energy (PACE) plan is the ability to finance home improvements with no money down. This eliminates the barrier of high initial costs, enabling property owners to undertake necessary and impactful projects without depleting their savings. This feature is particularly attractive for those who may not have access to large sums of capital for home upgrades. PACE financing covers 100% of the project's hard and soft costs, including materials, labor, and permits, so you can start a project immediately and begin reaping the benefits sooner.
Unlike traditional loans, eligibility for PACE financing is primarily based on the property's equity rather than the owner's personal credit score. While a history of on-time mortgage and property tax payments is typically required, the reduced emphasis on credit scores expands access to financing for a broader range of property owners. This aspect makes PACE a more inclusive option, especially for those with less-than-perfect credit who might not qualify for conventional loans or home equity lines of credit.
Potential for Property Value and Energy Savings
Upgrading your home with eligible PACE projects can lead to substantial long-term financial and environmental benefits. A PACE-funded improvement, such as installing a new HVAC system or solar panels, can result in lower monthly utility bills. The energy savings can help offset the cost of the annual tax assessment, and in many cases, may create a positive cash flow from day one. This means the savings from reduced energy consumption could be greater than the assessment payment, providing immediate financial relief.
Moreover, these improvements can significantly increase the value of your property. A study cited by Florida PACE found that homes with PACE financing saw a greater appreciation in value compared to homes without it. When it's time to sell your property, energy-efficient and resilient upgrades are often highly attractive to potential buyers, potentially increasing your home's marketability and sale price.
Types of Eligible PACE Improvements
- Energy Efficiency: High-efficiency HVAC systems, upgraded insulation, energy-efficient windows and doors, smart thermostats, and LED lighting.
- Renewable Energy: Installation of solar panels and solar battery storage systems.
- Water Conservation: Low-flow fixtures, drought-resistant landscaping, and smart irrigation systems.
- Resiliency and Safety: Hurricane-resistant windows, seismic retrofitting, and fire-resistant roofing materials.
Flexible Repayment and Transferability
PACE financing is unique because the repayment is managed through a special assessment on your property tax bill, rather than as a personal loan. This provides several advantages. First, the financing is tied to the property, not the individual. If you sell your property, the remaining PACE assessment may transfer to the new owner, who will then be responsible for the remaining payments. This feature can be particularly beneficial for homeowners who plan to sell in the near future and may not be concerned with recouping the full cost of the improvements. However, potential buyers and their mortgage lenders may require the balance to be paid off before the sale is finalized, especially with Freddie Mac and Fannie Mae mortgages.
Second, PACE offers long-term financing, with repayment terms often extending up to 20 or even 30 years, depending on the project. The long repayment period allows for lower annual payments, which can make large-scale home improvements more financially manageable over time.
PACE vs. Traditional Financing: A Comparison
| Feature | PACE Financing | Traditional Bank Loan/HELOC |
|---|---|---|
| Upfront Cost | 100% financing, no upfront cash required. | Often requires a down payment or upfront fees. |
| Collateral | Repayment is secured by a lien on the property itself. | Secured by the property, but structured as a personal debt. |
| Eligibility | Based primarily on property equity and tax/mortgage payment history. | Dependent on personal credit score and debt-to-income ratio. |
| Repayment | Through an annual assessment on the property tax bill. | Typically, fixed monthly payments separate from property taxes. |
| Transferability | Assessment may transfer with the property sale, though lenders may require payoff. | Must be repaid in full upon the sale of the home. |
| Lien Priority | Typically holds a higher lien position than the primary mortgage. | Positioned secondary to the primary mortgage. |
How Consumer Protections Safeguard Property Owners
As PACE programs have grown, so too have the regulations and consumer protections designed to ensure fair and transparent practices. In many states, PACE administrators are now required to provide clear and thorough disclosures, including an oral confirmation of key terms, to ensure homeowners fully understand their obligations. These protections help mitigate risks, such as high-pressure sales tactics or contractors misrepresenting the program as 'free'. Regulatory oversight at the state and local levels helps standardize operations and provides a mechanism for dispute resolution through consumer affairs offices. This added layer of security gives property owners greater confidence when considering PACE financing for home upgrades.
Conclusion
The benefits of a PACE plan make it a compelling option for property owners looking to invest in energy efficiency, renewable energy, and disaster-resistant improvements. The program’s key advantages, including no upfront costs, accessible financing criteria based on property equity, and long-term repayment through property tax assessments, provide a pathway for homeowners to make valuable upgrades. These improvements not only lead to reduced utility bills and a smaller carbon footprint but can also increase the property's market value over time. While it is important for property owners to carefully evaluate the impact on their financial situation, PACE offers a flexible and powerful tool to enhance both their home and their financial well-being.
