The Best Home Improvement Finance Options for Efficiency Upgrades

November 2, 2018

Paying for Your Home Improvement

The ideal home improvement finance option will vary from property to property. It will depend on the type of improvement and on the homeowner’s current financial situation.

Here are the most common home improvement finance options:

Although it’s not usually a realistic option for large projects, some homeowners may have cash on hand to cover the cost of the upgrade. Home equity loans and home equity lines of credit are secured by the property much like a mortgage, while an unsecured personal loan will not be tied to the home, but will usually come with a higher interest rate.1

Homeowners focusing on efficiency improvements, renewable energy or natural disaster preparedness may have specialized options that could prove more beneficial than the standard choices. Efficiency-focused financing is designed to put energy-saving upgrades within reach of everyone.

What Are These Energy Efficiency Financing Options?

This special class of financing includes energy efficiency mortgages (EEMs), various forms of on-bill financing where you pay for the home improvement loan through your utility bill, property assessed clean energy (PACE) financing, and energy service performance contracting (ESPC).2

These financing choices are designed to make efficiency upgrades more accessible for property owners because the terms take into account the cost savings and environmental benefits that the efficiency improvement could bring to the property and the homeowner in the future.3

Energy Efficiency Financing in Action

An energy efficient mortgage (EEM) takes the cost of energy into account. If the home is efficient, the owner (or the EEM-backed buyer) will have lower utility bills and, therefore, could potentially afford higher monthly mortgage payments. EEMs could allow buyers to “step up” to a more expensive home.4

What if you’re not in the market for a new home, but want to improve your property’s energy performance and value? PACE financing covers specific efficiency upgrades. Like EEMs, PACE is designed so that the homeowner can enjoy the benefits of energy efficiency.5

A Closer Look at PACE Financing

PACE financing removes the barrier of upfront cost, which makes efficiency goals difficult to achieve. The financing covers 100% of the initial costs associated with the PACE-approved efficiency improvements, renewable energy installations and other fuel-or-electricity-saving upgrades.

Furthermore, the terms are often longer than standard home improvement financing options. This allows the energy savings to help pay for the cost of the project over time.6

Can I Qualify?

Efficiency-focused home improvement finance options can make energy savings more accessible, but what about qualifying for financing? A PACE assessment is a “debt of property.” This means that it’s attached to the property and repaid through the property taxes. Approval will depend on the property’s equity and the homeowner’s ability to pay, not their credit score. This trait alone can make PACE financing and the benefits of greater energy efficiency more accessible to homeowners. Even if they can’t qualify for a standard home equity loan because of a low credit score, they may still be eligible for PACE financing. Furthermore, the first PACE payment may not be due for 12 months. This could give homeowners time to start realizing the savings that their efficiency improvement should bring.7

What Projects Can PACE Cover?

Ygrene’s PACE financing programs commonly cover:

    • Heating and air conditioning

    • Energy efficient roofing

    • Renewable energy installations (such as solar or wind power)

    • Disaster preparedness upgrades to protect against storms or earthquakes

    • Water saving improvements

    • Energy-saving insulation, windows and doors

PACE financing is available in select communities, submit your address to check if your property is eligible, here.