Today, we are going to go over the green efficiency programs (YGRENE, PACE and HERO) and see how we may benefit from them, but see as well what risks may be involved.
Saving water and energy is good for the environment, and you also benefit in the form of lower utility costs. But big upgrades like drought-resistant landscaping solar panels can be costly. If you’re looking to make green improvements, a PACE loan might be an option for funding. PACE financing makes it easy to qualify for relatively affordable long-term loans, but there are pros and cons to using these programs.
What Is PACE?
Property Assessed Clean Energy (PACE) is a way to borrow money for clean energy projects. Property owners get financing for upgrades and repay through property taxes. Getting approved will mainly depend on home’s equity.
Common uses of PACE include solar installations, energy efficient heating and cooling, water-saving landscaping, and numerous other projects for residential and commercial properties.
However, in Sean La Rue Home Loans we recommend to check the laws related to PACE in your state, as this type of financing is not available in all states. Some of the most well known programs are Home Energy Renovation (HERO) and Ygrene.
Advantages of PACE Loans
These programs have certain features that we thought were important to mention:
– It’s Easy to Qualify for them: getting approved for these loans seems much easier than with conventional loans. Your FICO credit score won’t be as important with PACE as with conventional loans, but current or recent issues in your credit reports can cause problems. You must also be current on all property taxes.
No down payment needed: PACE allows you to fund the entire cost of a project with no need of a down payment.. As a result, you don’t need to save up money before jumping on a PACE loan, but keep in mind that there will be higher interest costs and higher payments.
Can be transferred to the next owner: If you sell a property after making improvements, you don’t necessarily have to pay off the loan. The loan is attached to the property, so it can be transferred and paid off by the next owner. However, many federal loan programs will not allow a buyer to get financing with these tax liens assessed on the property and would need to be paid off at closing.
Time to repay: PACE loans can be paid off over extended periods of time and, as a consequence, payments can be kept relatively small. But, remember that the longer it takes you to pay it off, the bigger the interests will be.
Potential tax credits: PACE funding might make it easier to qualify for environmental tax credits — check with your tax advisor before making any decisions.
Problems With PACE Loans
Before using PACE funding for your project, get familiar with some of the pitfalls.
Conflicts of interest: PACE financing is often arranged through contractors who might have an incentive to promote expensive upgrades. Some of them may make misleading statements to get some of those incentives directly from you.
In addition to getting paid for the work they’ll perform, contractors might get additional referral fees from a lender if they arrange funding, and that’s where a potential conflict of interests may come into place.
Payment shock: You may be faced with a surprise expense when it’s time to make those inflated payments. In some cases, the PACE payment will be added to your monthly mortgage payment in smaller chunks.
Interest costs: PACE funding is relatively easy to qualify for. However, interest rates are sometimes higher than you’d pay if you simply use a home equity loan— especially if you have good credit. Don’t be fooled, PACE loans are not necessarily cheap, energy efficient, or the most cost effective.
Costs and benefits: It’s easy to get approved for PACE programs, but is it worth it? These programs make the most sense for individuals who cannot afford less expensive loans (often due to credit problems or limited income). Projects like replacing your windows can add to your home’s value, so you should get some of that money back when you sell. However, you won’t necessarily see a substantial change in utility costs — and you’ll still have to make higher tax payments.
Risk of foreclosure: PACE loans are secured by your home, so it’s possible to lose your home in foreclosure if you don’t make the payments. It is common to see foreclosure even if you make your regular mortgage payments, which is a position that no homeowners should be in.
The risks above do not mean that PACE programs are bad. However, it’s worth knowing the pros and cons of these arrangements before signing up. Unfortunately, the risks are often overlooked because PACE programs are perceived to be “safe.”
So that’s all for today, hope you found this article useful so far and don’t hesitate in reaching me out if you have any questions or need a consultation.