Upgrading Your Home with the HERO or PACE Programs

Filed under: Market Comentary

Do you love the idea of adding energy efficient upgrades to your home and getting a tax break at the same time? The Property Assessed Clean Energy (PACE) Program is a financing tool for energy efficient upgrades for residential properties. Examples of these upgrades might include solar, windows and doors, replacing grass with turf, and more. There are many different possibilities for the way these resources can be used to upgrade a home.

HERO is a company that manages the process of the PACE program. Essentially, they fund the loan, and then they add to the property tax assessment on the house, so it assessed through the property tax system.

Benefits You Can Expect

One big benefit of this program is that property taxes become tax deductible. You will need to talk to an accountant for personalized recommendations applicable to your situation, but people can often use this system to take their energy efficient upgrades and deduct these costs on an annual basis.

Another benefit is that these programs are easy to qualify for, so there are many homeowners are that using these systems to upgrade their homes right now.

Challenges of These ProgramsPACE Assessments

Will you run into problems if you choose to upgrade your home in this manner? There are a handful of challenges that you might expect. For example, they don’t offer the best financing terms for homeowners, with interest rates as high as the 8-9% range. So, you might be able to find a private option that offers better financing terms for your home renovations.

The biggest challenge is that it makes it hard to put a mortgage on the house. When a lender agrees to finance the loan, they want to be in the first position to get paid first if something goes wrong. But, a mortgage always falls behind the priority of all other taxes, including federal, income taxes, or anything else. Since the taxes could take precedence over the mortgage, some lenders don’t like to finance a home when this program is used.

What to Do When a Home Used PACE/HERO

In many situations, when a property is being sold, and the owners used the PACE/HERO program, there are often negotiations to have it paid off to allow the buyer’s financing to be approved. Some lenders can’t find a way to finance around the program, so the requirements will need to be met so that they buyer can pay for the home.

So, you need to be careful if you are thinking about using this program to finance your home upgrades. There are ways to get the financing done with the program in place, but some lenders have overlays in place that just don’t allow it.

Here at Franklin Loan Center, we can do financing on conventional programs when the PACE/HERO assessment is against the house and not being paid off. So, if you need financing in this situation, then we encourage you to talk to us to learn more.

Franklin Loan Center | NMLS 237653
Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, 4131316
For questions or concerns please email info@franklinlc.com