Is PACE Financing Right for Your Solar Project? Here's What You Need to Know

If you're a homeowner considering going solar, you may have come across PACE financing as an option. But what exactly is PACE financing, and is it the right choice for your solar project? Let's dive deep into the world of PACE financing and explore its advantages, disadvantages, and potential pitfalls.

What is PACE Financing?

PACE, or the Property Assessed Clean Energy Program, was created in 2008 to increase access to sustainable building improvements, reduce carbon emissions, and generate green jobs. Originally targeted towards low-income homeowners, the program gained popularity when it started including home solar panels.

With the support of government promotion from former President Barack Obama, the PACE program experienced significant growth. In just one year, the total amount of loans distributed to residential property owners quadrupled to over half a billion dollars.

However, despite its initial noble intentions, PACE financing has gained a bad reputation due to some bad actors taking advantage of unsuspecting homeowners. It's crucial to understand how PACE loans work and weigh the pros and cons before making a decision.

How Does PACE Financing Work?

PACE financing is similar to a traditional loan, but with a unique payment structure. Instead of repaying the loan directly, you pay it back through an increase in your property taxes. This means the borrowed amount is attached to the property itself, rather than the borrower.

For example, if you get solar panels installed through a PACE lender, your property taxes will increase, and the additional amount will go towards paying back the loan. The loans typically range from $25,000, with terms lasting between five and 25 years.

What sets PACE financing apart is its accessibility and relaxed eligibility requirements. Unlike traditional loans, PACE loans are based on your property's equity rather than your personal finances. This means even if you have a lower credit score, you may still be eligible for PACE financing.

Where Is PACE Financing Available?

Residential PACE (R-PACE) financing is currently offered in California, Missouri, and Florida. Plans to expand the program to other states, such as New York and Ohio, are in question but may become available in the future. Additionally, there are PACE programs for larger-scale commercial and multifamily properties, known as C-PACE, which are more widely available.

Pros and Cons of PACE Financing

As with any financing option, PACE financing comes with its own set of advantages and disadvantages. Let's explore both sides to help you make an informed decision:

Pros of PACE Financing

• Debt tied to property, not the borrower: A PACE loan becomes part of the property assessment and is repaid through property tax bills. This means loan repayments transfer with the home when it is sold, placing the responsibility on the new owner.
• Low, fixed interest rates: PACE financing terms offer attractive fixed rates, typically ranging from 6.5% to 9.0%. This provides protection against potential interest rate hikes.
• No money down: PACE loans offer up to 100% financing, making it helpful for homeowners who don't have extra cash on hand.
• Easy approval process: PACE loans are based on your property equity rather than your personal finances, making them easier to qualify for. Even with a poor credit score, you could still be eligible for PACE financing as long as you are up-to-date on mortgage payments and haven't declared bankruptcy within the last two to three years.

Cons of PACE Financing

• Difficult to sell home: PACE obligations often take priority over mortgage payments, potentially causing lenders to refuse mortgages for a house with a PACE lien. This can make it challenging to sell your home. Prospective buyers may be hesitant to take on additional debt or purchase a property with a PACE lien.
• Risk of losing your home: Since PACE loans are secured by your property, failing to make payments on time or affordability issues could put you at risk of losing your home.
• Borrowing more than you can repay: While the easy approval process is an advantage, it can lead some homeowners to opt for projects beyond their budget. This can result in repayment struggles, causing financial strain.
• Contractors taking advantage: Some contractors have been known to push PACE financing without fully explaining its implications. This lack of transparency can leave homeowners unaware of the potential increase in property taxes or the risks involved.

Controversies and Red Flags to Know About

It's essential to be aware of the controversies and red flags associated with PACE financing. Here are a few key points to consider:

1. PACE is not a federal government program: Despite being advertised as a government initiative, PACE financing is not federally backed. This misconception gives contractors an opportunity to use it as a sales tactic, potentially misleading customers.
2. Lack of independent third-party assessments: PACE assessments often lack independent oversight, which can lead to inflated recommendations for home upgrades. Without proper guidance, customers may feel pressured into unnecessary work on their homes.
3. Limited consumer protections: Unlike standard loans, PACE loans are not subject to the same consumer protection regulations. This has resulted in cases where customers have experienced credit damage, overwhelming debt, or even losing their homes.

Is PACE Financing Right for You?

While paying for your solar system in cash is the ideal option, not everyone has the upfront funds available. In such cases, considering a regulated loan option from traditional providers might be a better choice than PACE financing.

PACE financing could be the right choice for homeowners who own their homes and can comfortably handle an increase in property taxes. However, if you're unsure about the long-term financial implications or do not qualify for PACE financing, alternative solar financing options like solar leases or Power Purchase Agreements (PPAs) may be worth exploring.

Before committing to any financing option, it's crucial to do your research. Reach out to local solar installers for more information on PACE financing, ensuring you choose an installer with a trustworthy reputation. Reading customer reviews and obtaining quotes from multiple companies will give you a well-rounded view of your options.

Remember, solar energy offers substantial benefits both in terms of environmental impact and potential cost savings. By doing your due diligence and considering all factors, you can make an informed decision that aligns with your financial goals and sustainable living aspirations.

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