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So what’s the big deal with PACE anyway?
PACE (“Property-Assessed Clean Energy”) financing is a relatively new way for homeowners to get energy efficiency and renewable energy upgrades with no upfront cost. PACE is basically a loan that uses your home’s value and the expected energy savings from the funded project as collateral, and the payments generally cost less to pay back than the savings gained from the improvements.
Using the improved home value as collateral means PACE financing doesn’t require the homeowner to have excellent credit or thousands of dollars. But the real revolution of the PACE model is that the payments are added to the homeowner’s property tax bill, essentially removing many of the complications that come with transferring other kinds of no-money-down solar contracts between owners when the home changes hands.
Where can I get PACE financing for my home solar project?
Residential PACE is only available in two states and a few cities around the country. So far, you can get a PACE loan statewide in only California and Florida. For cities, St. Louis and Kansas City, Missouri are the places to be.
Let’s break down the main PACE lenders to know:
|PACE Lender:||State(s):||Term offered:|
|PACE Funding||California||5-25 Years|
|California First||California||5-25 Years|
|HERO||California & K.C., MO||5-20 Years|
|Ygrene||California & Florida||5-20 Years|
Note: Solar Power Rocks has teamed up with PACE Funding in California, because they offer the best rates and service for homeowners, and the best support for contractors.
Advantages of PACE financing for solar power
There are several ways PACE financing can help if you’re thinking about going solar. Here’s a quick rundown:
- No money down – The whole project cost is fully covered by the loan
- Amazing credit not necessary – The value of the loan is secured by the home. You still have to be current on your mortgage and property taxes
- Cost of the loan is paid by energy savings – This is the big one. If you can’t afford thousands of dollars for solar, you can still get it and most likely save money compared to your current electric bill. California’s energy costs are super high, and a moderately-sized (5-kW) solar system there can save you upwards of $100 per month, while the loan payments will cost only about $60/month, saving you $40/month immediately, and for the next 25+ years.
- Interest paid is often tax-deductible – Tax law is a sticky subject, so talk to your expert tax person before making any moves, but being able to deduct a bunch of money from your income because you got solar panels installed is a pretty great benefit, no?
- No prepayment penalty – You’ll still qualify for the federal government’s 30% solar tax credit, so why not use it to pay the PACE loan down early, thereby greatly reducing your interest payments over time?
Disadvantages of PACE financing
PACE might seem too good to be true, so let’s bring that excitement down a little.
- Interest rates are higher than other financing types – Taking a loan for solar is a great idea. You’re basically agreeing to pay for an income-generating asset with the income it generates. But PACE loans tend to be a little higher than other forms of equity credit. If you have good enough credit to get a HELOC, you can find one these days with a rate of 3%-6%, whereas PACE loans are often in the 6%-8.5%, with origination fees that drive the APR up to the 9%-10% range. If you have good credit, you can do better.
- Superior lien position – Because PACE loans are tax liens, by default they get paid back first in the event of a default on the mortgage. That makes most banks—especially banks that write FHA loans—unwilling to lend money for home mortgages with a PACE loan present. That can make it hard to sell or refinance your home if you have an outstanding balance on your PACE loan. One way around this problem is to ask your lender to “subordinate” the PACE loan, or reduce its payment priority in the event of a default. HERO and PACE Funding are the two lenders we know of who are willing to work with homeowners to subordinate the lien position of their PACE funds.
If you’re ready to take the next step
If you’ve been thinking about solar and you’re ready to find out whether PACE financing or any other payment arrangement can work for you, you’ll find an advocate at your local solar installer’s office.
PACE financing is administered by the organizations we listed above, but to get approved, you have to go through an installer, who will set everything up for you. Connect with a solar installer near you and start the ball rolling today!
Last modified: October 23, 2018