Pace financing for energy efficiency projects

If you want to finance your energy efficiency upgrades, standard energy efficiency loans, and energy efficient mortgage options are available for your property. However, if you choose a loan or mortgage, it can take years to start seeing net savings from your energy efficiency improvements. Property-assessed clean energy (PACE) financing is a solution in which you repay your loan as part of your annual property taxes.

With many energy-efficiency loans, property owners pay back the amount owed to the lender every month. PACE financing is different. If you take out a PACE loan to fund your home energy efficiency improvements, you repay the amount owed on an annual basis as an assessment of your property taxes.

PACE financing is available in areas where the local government has allocated funds. Three things need to happen for you to make your property energy efficient with PACE:

1. A county, local, or municipal government must pass legislation establishing a PACE program and making funds available to investors, usually through the sale of a municipal bond.

2. An authorized PACE lender (such as Renew Financial) provides those funds to property owners who want to make energy improvements, like upgrading a heating system or replacing windows, on their home or business.

3. Property owners repay the financial institution through an assessment attached to their annual property tax bill.

Suppose you are a residential or commercial property owner. In that case, you can use PACE financing to pay for various home energy improvements, new heating and cooling systems, insulation, and other energy efficiency upgrades.

While PACE financing provides homeowners with funds to upgrade their homes, it is distinct from other home improvement loans in a few important ways.

Payments

Instead of repaying the loan in monthly installments, property owners repay the loan once a year for a fixed term (10-20 years) through an assessment added to their property tax bill.

Day-one savings

When you conduct energy efficiency improvements using PACE financing, you immediately enjoy the financial benefits of reduced electricity use without paying anything upfront. Because the amount of money you save in electricity costs throughout the year will typically be greater than the annual increase in your property taxes, you will always benefit from the net gains of your energy efficiency investment.

Selling your home

If you sell your property before your PACE loan is completely paid off, the rest of the money owed transfers to the new property owner. Unlike most other loans or leases where transfers are negotiated separately, PACE loans are attached to the property rather than the owner, simplifying the transfer process. Plus, the new owners won't mind, as they'll immediately enjoy the financial benefits of an energy-efficient home.

Credit requirements

While funding amounts and interest rates for traditional loans are determined by your credit, PACE loan amounts are determined by the tax capacity of your property (i.e., how much your property is worth). For property owners who don't have good enough credit to access favorable loan options, PACE financing is an excellent alternative for receiving the financial benefits of energy efficiency with no upfront costs.

Because PACE financing must be enabled by legislation, it isn't yet available everywhere in the U.S. The first step is to confirm that PACE options are available in your state. Currently, active PACE programs in 20 states plus Washington, D.C., and 16 more have PACE-enabling legislation.  Three states offer residential PACE programs through providers like Renew Financial: California, Florida, and Missouri. Find out if PACE financing options are available near you.