In the city of Lancaster, solar panels on roofs throughout the city will soon become commonplace due to changes in the city zoning code that mandates solar be a part of all new residential construction projects. In my real estate practice, I have been asked by many home owners how they can install affordable solar panels on their existing homes as well. I have recently discovered a financing program that, while may not be for everyone, does offer an innovative financing alternative for many homeowners looking to upgrade their homes with solar or other energy-efficient projects.
This innovative financing program was launched in California almost a decade ago and is giving more American homeowners the possibility of improving their homes, lowering their utility bills, and making their homes more comfortable. The promise of Property Assessed Clean Energy (PACE) financing is so great that it has been enthusiastically embraced by state and federal leaders, all the way up to former President Barack Obama, who put PACE at the heart of his administration’s Clean Energy Savings for All Initiative.
PACE allows homeowners to make energy and efficiency improvements, including going solar, adding insulation, replacing doors and windows and replacing lawns with drought-resistant landscaping, and pay for them over time through their property taxes. By reducing demand for energy and water, these improvements may save homeowners money on their monthly utility bills, while helping communities meet their environmental targets. By creating demand for local contracting services, PACE also creates clean-energy jobs and stimulates the local economy.
PACE financing may be a good choice compared to other types of home improvement financing, like double-digit-interest credits cards and home equity lines of credit that rely on FICO scores. For many, the fact that they can move forward with their project for no money down for 18 months is an important consideration, as is the ability to pay for the project for up to 25 years, spreading the cost out and bringing payments within reach. PACE is based on equity in the home and on-time tax and mortgage payments. But PACE financing also brings consumer protections to homeowners.
PACE programs are overseen by local governments in partnership with private financing companies, and PACE financing is repaid through a homeowner’s property tax bill. Because of the nature of this public-private partnership, PACE programs provide extra support to homeowners dealing with home improvement contractors.
Leading PACE financing programs like HERO and California FIRST have long taken extensive measures to ensure that contractors that offer PACE financing follow strict standards. Contractors do not receive any payment until the project is completed to the satisfaction of the homeowner, and they must install products and appliances that are state- or federally-certified as efficient. Companies that offer PACE financing to customers must also have their contractor’s license in good standing and have a good track record with the program.
The PACE industry worked on California legislation this year to ensure financing terms are clearly spelled out to customers in the documents you sign, and they are providing extra support when homeowners and realtors are involved in buying, selling, or refinancing a home with a PACE lien.
As a relatively new form of financing, homeowners and real estate professionals are still learning how PACE works. I see comments in social media and online that reveal the questions folks still have.
Some worry that PACE “puts a lien on the house,” not understanding that it’s the equity in the house that backs the financing, and your mortgage and property taxes are “liens” that you pay off before you take profit out of the sale of your home. Some worry that contractors are misrepresenting how much it will cost or save. That’s why PACE now provides the same level of disclosure of terms the mortgage industry requires, even though projects cost 10 times less than homes do. Some worry that seniors won’t understand the details, especially if they are electronically signing documents. That’s a concern with every financial transaction. That’s why programs like HERO require a live phone call before they can move forward, to help explain and ensure understanding.
While it’s true that PACE financing is not right for every homeowner, it is a valuable tool that brings efficiency-oriented investments into reach for qualified property owners of a wide variety of means. Because of programs like PACE, home renovations like solar panels and efficient water heaters can move out of the category of “luxury item,” and can now be obtained at a cost that is reasonable for many homeowners – and help pay for themselves through utility bill savings.
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