By Jarrod Etheridge
What is the PACE Program?
When a homeowner is looking to upgrade their home to solar energy, the first step is to determine exactly how the project will be paid for Since most people typically do not have thousands of dollars in their rainy day fund, many people will require a loan to finance the upgrades. The PACE program will provide the loan for the homeowner.
PACE, which stands for property assessed clean energy, is a new concept in financing home and commercial property improvements. PACE financing is an easy and effective way to finance a range of upgrades that save energy, conserve water, harness renewable energy, and protect against natural disasters such as hurricanes and earthquakes. While PACE programs are enabled by state legislation and approved by local governments, PACE financing is not a government discount or incentive program.
PACE financing is a loan that is available in areas where the local government has allocated funds to be used for financing improvements on residential and commercial properties. An authorized PACE lender provides the funds to the homeowner, and the property owner repays the financial institution through an assessment attached to their annual property tax bill. The specific amount of money you qualify for is dependent on the amount of equity in your house. Hundreds of home and commercial improvements qualify for PACE financing. Among the more common are solar photovoltaic (PV) systems, roofing, HVAC systems, impact-resistant windows and doors, drought-tolerant landscaping and many more.
The PACE program provides many benefits such as no money down with 100% financing and no payments for up to twelve months. A PACE loan is different than traditional loans because it attaches to the property, not the person. This means that the person who takes the loan can sell their house, and the loan is then paid by the new owner of the house.
A loan with zero upfront costs attaches to the property rather than the person, and provides upgrades such as Solar panels, almost sounds too good to be true. Are there any downsides to a PACE program loan? For many homeowners, there have been.
Are there problems with the PACE program?
Ygrene Energy Fund is one of the bigger PACE program lenders in Florida. A typical PACE loan financed through Ygrene Energy Fund Florida lasts about 20 years with an average interest rate of about 7 percent. The PACE program has a higher interest rate than other green mortgage alternatives such as FHA loans. Borrowers can expect to repay twice the project cost over the payback period. As with any other type of loan, failure to make payments to a PACE loan will end up in a lien, which eventually could result in foreclosure. A property assessment automatically becomes the first lien on any property, putting both the borrowers and the mortgage lenders at risk of losing their money. With the risk incurred by the mortgage company, many lenders will not finance a purchase of a property holding a PACE loan.
Many issues have arisen with contractors recommending a PACE loan to homeowners. It has been reported that some contractors charge more money for services that are financed through a PACE loan. There have also been reports of contractors stating that the price of payments on the loan would be offset by the amount of money the homeowner saves in utility bills, which for many homeowners was not accurate. In many instances, the homeowner relies on what the contractor has told them, regardless of whether this information is factually accurate.
Should I use the PACE program?
Many homeowners did not take the time to read the full contract for a PACE loan, nor did they do the appropriate research to determine if this program was the right program for their specific situations. Some homeowners have alleged that they did not even know that failure to repay the loan would result in a lien on their property. If the house is foreclosed upon, the homeowner will have to pay the PACE loan off in full. If there is any money left over, the lender of the mortgage (if there is one) will be entitled to the surplus. This would leave the homeowner with a very unlikely chance of receiving any money from the foreclosure sale of their home.
Is it worth getting a PACE loan for solar in Florida?
Yes, and No. The PACE program is not a one-size-fits-all program and should be scrutinized by each homeowner BEFORE they sign the contract. If you understand the PACE program, there are certainly ways to use it to your advantage. The real issues with the program seem to stem from homeowners jumping into a program without fully understanding the long-term contract. After the Solar panels are installed, the reality sets in that the PACE loan is a 20-30-year commitment that can potentially cost twice as much to repay, if the homeowner can make the payments at all. If you are the type of person who reads the terms of service on products you purchase, you should not have any problems with the PACE program, however, the PACE program is not a commitment in which you want to agree to the terms of service without first reading them.