What is PACE Financing? The Basics You Need to Know

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October 2, 2017

The U.S. Department of Energy describes property assessed clean energy (PACE) financing as “an innovative mechanism for financing energy efficiency and renewable energy improvements on private property.” In other words, PACE programs help private property owners finance improvements that will increase their property’s energy efficiency and eco-friendliness.

In some areas, PACE also covers improvements that also save water and protect against natural disasters like earthquakes and hurricanes. The goal of PACE programs is to make widely accessible the benefits of reinforcing your home and lowering your carbon impact. PACE financing is available for all types of privately owned property, including both residential and commercial real estate. The specific programs are sometimes referred to as R-PACE and C-PACE, respectively.

How Does It Work?

The DOE further explains that although PACE programs are administered by different authorities in various parts of the country, all have the same goal: to make energy efficiency improvements more affordable for more property owners by covering the up-front expenses associated with such upgrades. The property owner can use the PACE financing to pay for the upgrade, then repay the amount financed (plus interest and applicable fees) over time.

In some cases, savings associated with an eligible upgrade may cover some, if not all, of the repayment cost of the upgrade over a number of years.

How Are the Payments Made?

PACE financing is secured by the property itself (otherwise known as a “debt of property”). Whoever owns the property is responsible for making the payments for the PACE assessment. The payments associated with PACE projects are listed as a line item on the property taxes. If the property is sold or otherwise changes hands, the new owner is then responsible for paying for the PACE assessment.

The old owner has no financial obligation related to the PACE upgrade once he or she sells the property. In order to operate, PACE must be invited into each city or county by local authorities, so the details of the programs tend to vary from place to place.

Advantages and Disadvantages for Homeowners

In terms of advantages, homeowners may obtain PACE financing with no upfront payment, a competitive interest rate, and up to 100 percent financing (covering the entire cost of the project plus installation).  Savings associated with eligible upgrades also reduce the effective cost of the improvements to the property owners from date of completion of the eligible upgrade.

On the other hand, the PACE assessment is secured through a lien on your property that will pass from owner to owner. Unfortunately, some mortgage lenders will require that PACE liens be paid off prior property transfers or refinancing of the property. When selling the property, the seller must disclose any PACE assessments that the new owner will be liable for.

Potential buyers might balk at the idea of buying a home with extra attached financing, and potential lenders may be unwilling to provide a mortgage unless the PACE financing is paid off entirely before the new buyer purchases the home.

What Type of Improvements Are Covered?

Because they are administered locally, the list of projects covered by PACE programs will vary from city to city; county to county. That said, certain types of improvements are often PACE-eligible, such as:

  • Solar panels: Solar improvements can be expensive, but they can significantly cut energy costs. PACE programs may cover both installation and solar panel leasing.
  • Climate controls: High-efficiency air conditioners, heat pumps, and new ductwork may qualify for PACE financing.
  • Lighting improvements: LED lighting fixtures can significantly cut electricity costs. Even more expensive fixtures may pay for themselves with energy savings in the long run. Some PACE programs may also offer financing for lighting controls such as timers and sensors.
  • Insulation: can help lower both heating and cooling costs and is a common candidate for PACE financing, because many homes built before the 1960s lack proper insulation.
  • Cool roofing: This newly developed improvement lowers the effects of solar gain on a building, thereby lowering cooling costs.
  • Water efficiency: Plumbing improvements like the installation of low-flow toilets or faucets and irrigation-related upgrades like drip irrigation, rainwater catchment, and greywater recycling systems can reduce water use. PACE-funded landscaping improvements like artificial lawns are also meant to lower water costs.
  • Disaster-proofing: In areas where natural disasters like hurricanes and earthquakes are a possibility, PACE programs may cover improvements that enhance storm or quake resistance. This could include things like shatter-proof windows, roof reinforcements, seismic retrofits, and structural connections.

Will PACE Financing Work for My Home Improvement Projects?

Since the details of PACE programs vary by location, homeowners should enlist the help of certified PACE contractors to make certain that they are following the local PACE rules and obtaining the maximum amount of financing for which they qualify. Finding reliable home improvement specialists who may provide guarantees or warranties for their work and for the equipment they install can give homeowners peace of mind – and help ensure that the upgrade provides the kind of “positive cash flow” associated with PACE efficiency projects.

Find out if PACE is available in your area – call Ygrene at (855) 901-3999 or check your eligibility online.