Frequently Asked Questions on PACE
What is Property Assessed Clean Energy Financing?
Property assessed clean energy, or PACE, financing allows property owners to fund energy efficiency, water efficiency and renewable energy projects with no up-front costs. With PACE, residential and commercial property owners living within a participating district can finance 100% of their project and pay it back over time as a voluntary property tax assessment through their existing property tax bill.
PACE overcomes barriers to the adoption of clean energy that conventional financing options cannot. First, by offering 100% financing on qualifying improvements, PACE eliminates the need to pay out of pocket for your project. Secondly, repayment usually is amortized over 20 years, keeping your monthly payments low enough that your utility savings may exceed your payment, creating a net positive cash flow from day one. Finally, by utilizing your property tax roll and collecting repayments as part of property tax payments ties the loan to the property, not an individual, and therefore may transfer upon sale or refinancing of the property. In other words, you don’t need to worry about recouping the cost of your improvements if you decide to sell before the loan is repaid.
Who can take advantage of PACE?
PACE is a type of financing program, so it is up to the individual PACE financier to establish their program’s terms, underwriting criteria and property type eligibility for issuing loans. In general, PACE programs offer competitive financing terms to property owners with at least some equity in their home or business (80-90% LTV) and have not been delinquent on their property tax and mortgage payments. Each property has its own property eligibility and financing terms.
Which property types can access PACE?
Under various state laws, PACE financing can be used for residential, commercial, and municipal properties. The legislative authority of a particular jurisdiction adopts determines whether or not all three property types are eligible.
The individual city or county forming a district further determines the eligible property types. Following the initial guidance of the Federal Housing and Finance Agency (FHFA) to mortgage originators concerning residential PACE, many cities and counties elected to suspend their existing residential programs, or move forward with a commercial-only program, as a way to mitigate potential risk for homeowners. Today, many PACE assessment districts still exist exclusively for commercial properties, with the option to expand to residential at some time in the future. Those that include residential PACE rely on legal instruments to address the FHFA concerns. Examples include issuing lender consent of the PACE lien, as well as disclosure statements to the homeowner acknowledging what consequence the PACE lien could have on their existing mortgage contract.
What can be financed with PACE?
Similar to property type eligibility, eligible products that can be financed with PACE are vetted and approved by individual PACE providers and administrators. In general, most products that can be permanently affixed to a property and reduce on-site electric, gas or water consumption will be considered eligible. Some examples include attic insulation; heating, ventilation and air conditioning replacements including CHP; solar photovoltaic and thermal systems; and low-flow toilets.