What You Need to Know About Residential PACE Financing for Solar

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Ready to pick up the “pace” on your solar project? If you’ve been reading up on your lending options for a renewable energy system, you may have seen sites throwing around the words “PACE financing.” Property assessed clean energy, or PACE, is a payment structure initiated by the federal government that allows local municipalities to issue loans for energy efficiency and renewable energy projects—on both commercial and residential properties. The loan amounts are later paid back as an additional assessment on an owner’s property taxes.

Solar providers and renewable energy proponents get excited about PACE programs because they’re largely considered to be one of the most innovative solar payment structures around. In fact, Scientific American notably named the program as one of the top 20 world-changing ideas of all time. Why all the enthusiasm? Generally, PACE programs allow homeowners and businesses to pay for solar equipment with absolutely no money down, making them an option for a household or business that wants to go solar, but doesn’t have the cash flow to pay for a $25,000 system up top.

solar panels on mountainous home

PACE Availability Varies By Location

The major qualification for PACE financing is where you live. PACE has to be enacted by a vote from a local municipality, and that’s just not something every local government has the means or desire to oversee. PACE financing is currently enabled in 32 states, as well as the District of Columbia—but keep in mind that “enabled” doesn’t mean active. Your state legislature may have approved PACE financing in your area, but that doesn’t mean your local government is required to offer the program. Furthermore, some states have put PACE programs on hold since approving them.

The best way to tell if you have a local PACE program available is to search for your area using the PACENation database. This organization keeps track of the programs on offer across the nation, and it can tell you what kind of loan options you have in your county.

Other Factors May Affect Your Eligibility

Just like any other loan, you’ll have to meet certain eligibility requirements in order to qualify for PACE participation. Your income, credit score, and debt profile will all be examined, although there are some special options for low income households, as well. Your loan is provided by a private lender, so there will definitely be strict eligibility requirements.

Additionally, because PACE financing is property assessed, the value of your home will also come into play, too. So if the overall property assessment doesn’t meet the provider’s standards, you could be rejected. Ultimately, you’ll need to talk to your PACE contractor and loan provider to get the full details.

solar panels on rural home

The Pros—and Cons—of PACE Financing

Life is unpredictable. Sure, you intend to stay in your home long-term, but you never know what’s going to happen. One of the major benefits of PACE financing that the loans are attached to the house—like a mortgage. That means they’re transferrable if you decide to move or sell your property to another party. You won’t be stuck paying for energy equipment you don’t use in case your living situation unexpectedly changes.

Additionally, PACE-financed loans typically allow you to take out longer repayment terms than you might get if you reached out to your bank or credit union to purchase your solar equipment. In fact, repayment terms may extend as long as 15 to 20 years, with lower monthly fees as well.

And, of course, with PACE financing, you don’t have to find the money upfront to pay for an energy retrofit. Equipment and installation costs are 100 percent covered by your loan with zero dollars down.

On the flip side, however, because monthly payments are based on your home’s property assessment, it can be difficult to predict the exact payment amounts ahead of time, and budget accordingly. That makes you a lot more dependent on the word of your PACE contractor, and sometimes they’re just wrong. Some homeowners report that they were blindsided by large payments that were much heftier than their installer led them to believe. They’ve also seen high interest rates for the PACE loans—about three to four percent higher than a typical mortgage loan.

Additionally, having a PACE loan attached to a home could potentially make it harder to sell, for obvious reasons. Although renewable energy equipment on your home has been shown to make homes sell faster, so it’s possible the two factors may cancel each other out.

Residential PACE Programs Have Come Under Intense Scrutiny

The rules around residential PACE are definitely getting stricter. The program’s many critics caused them to release updated guidelines in November, mostly to protect homeowners and lenders. You can read those here, but in essence, they attempt to manage contractors who work on PACE projects, provide more insight into interest rates and monthly costs for homeowners, and protect lenders’ investments by offering a process to check a homeowner’s creditworthiness.

Essentially, that means that your PACE project application may be scrutinized more harshly than in past years. But in the long run, you’ll also get clearer insight into your project’s true costs—and knowledge is power when it comes to your home’s energy use!