PACE Loans – Property Assessed Clean Energy
To borrow or not to borrow – That is the question
Like most things in home improvement there are Pros & Cons with financing. One of the biggest upsets when it comes to PACE funding or “Property Assessed Clean Energy” is the lack of understanding of how it really works. in 2016 there was a undercover news team that did an piece on a PACE provider who was scamming elderly homeowners. While we don’t think the PACE company was to blame for this terrible act of deception by the contractor there is quite a bit of confusion and misconceptions about PACE that are important for every homeowner to be aware of. While PACE has proven to be beneficial to thousands of homeowners it’s important to do your due diligence and find out completely about the project. Talk to your FairBids.Com representative for more information. Watch the special T.V. Report Below.
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What is PACE?
Property Assessed Clean Energy (PACE) is a means of financing energy efficiency upgrades or renewable energy installations for residential, commercial and industrial property owners.
PACE is simply a finance option where you take out a loan through your property taxes, there is principal, interest and FEES, that you need to be aware of. This is a loan that your property taxes are committed to paying back. PACE is NOT a FREE government program. It is a LOAN that as long as you own your home you are committed to paying back with interest. If you default on this loan your house may be seized and/or auctioned off to pay off the debt since it’s tied to your property.
There are Pros and Cons to using PACE. The best protection you can have as a homeowner is your knowledge of how the program really works. Normally hearing it from a contractor / salesperson that is trying to get you to use it is not the best source. They have a vested interest in getting you to use that program because PACE normally does not charge any “Dealer Fees” to the contractor to use the program which means more money in the contractor’s pocket compared to other financing options.
However in California it has been reported that HERO. (Home Energy Renovation Opportunity) or Renovate America is offering reduced interest rates to their “Channel Partners” customers for a dealer fee. So basically those contractors have to pay a fee to offer you a “Reduced Interest Rate” loan through HERO. This makes them more appealing as a contractor over others that cannot offer those rates. Basically HERO is allowing some contractors to buy a more appealing program to present to homeowners.
What Are The Benefits
PACE does have some benefits. Since your property taxes are assessed annually depending on the time of year that you sign up for and complete a PACE approved project your property taxes may not change until November of the following year. This is very attractive to some homeowners because of the delay or deferred payment.
However a pitfall to be aware of is that there are heavy county fees involved in using PACE and you will be charged interest up until your first payment. Many times if you compare the monthly amount your PACE loan will come out to compared to a conventional loan at a higher interest the monthly amounts may be close to the same. Most likely due to the fees and all the interest you have to pay.
Other benefits can include possible tax write offs on the interest. As you can imagine tax laws are changing every year and as of the writing of this blog in 2017 the IRS was allowing certain cases of the interest to be written off with your taxes. Always consult your accountant or tax professional if you have questions or concerns.
PACE reports to have another benefit of not touching your credit. Make no mistake, there will be an inquiry of your credit to establish you and your homes eligibility. There is no such thing as a “Soft” pull of your credit. A inquiry is an inquiry and will be a hit to your score. However, if you complete a PACE loan project the amount will not be reported on your personal credit score as a loan that you have which could be beneficial if you are really concerned about your buying power in the future.
Pros & Cons
One of our homeowners reported that there was massive differences in the “lump” sum payment required at the first assessment as well as “no where near” the reported monthly costs to increase in escrow. This ultimately caused the homeowner to pay several thousand dollars more out of pocket than expected and instead of an increase of $560 a month to their escrow an increase of $1000 + was added.
You can image the shock and awe the homeowners went through. It was reported that this was in California and run through the HERO (Home Energy Renovation Opportunity) which is also aptly named Renovate America. Our Homeowner reports that after contacting HERO for help they were told to basically just fight and argue with their bank/escrow company over the issue and that it was the banks fault and not HEROs. PACE loans are not for everyone and it’s extremely important that you do you due diligence.
Does It Affect My Equity?
Yes! Although we have heard may contractors and even some PACE providers like HERO have made statements that it does not affect your equity it most likely will. While it is not considered an equity loan, more than likely any bank you deal with when it comes to refinancing or selling your home will count it against your equity. Call your bank and just ask!
What is Subordination and does PACE Subordinate?
Is PACE Tax Deductible?
In June of 2016 The IRS updated its information on deductible taxes as it relates to PACE Funding. It includes language that clarifies the issue which had been a source of extreme confusion & arguments among several groups that deal with PACE including accountants.
The argument used to be whether or not all or a portion of a property owner’s PACE payment may be deducted from one’s income tax. The IRS clarified that subject to various restrictions, the interest portion of a PACE payment can be treated as a deduction to personal income taxes when applicable.
Here is the actual IRS article.