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title: "PACE Financing for Energy Improvements" description: How Property Assessed Clean Energy financing works — the benefits, risks, eligibility, and controversy surrounding PACE loans. summary: How Property Assessed Clean Energy financing works — the benefits, risks, eligibility, and controversy surrounding PACE programs. category: financial difficulty: Intermediate updated: 2026-02-10 tags: ["PACE", "financing", "solar", "efficiency", "property tax"] relatedTools: ["/tools/solar-roi", "/tools/cost-estimator"] faqs:

• question: Is PACE financing a loan? answer: Technically, no. PACE is a voluntary assessment placed on your property, repaid through your property tax bill over 10–25 years. However, it functions like a loan with fixed payments, interest, and the ability to default. The key difference is that it's secured by the property (like a tax lien), not by your creditworthiness.
• question: Can I sell my house with PACE financing? answer: Yes, but the PACE assessment transfers to the next owner. Some buyers may object to inheriting the assessment, and some mortgage lenders may require it be paid off at closing. FHFA (which oversees Fannie Mae and Freddie Mac) has historically opposed PACE's priority lien status, though recent regulations have addressed some concerns.
• question: Who qualifies for PACE? answer: Residential PACE (R-PACE) qualification is primarily property-based — the property must be in a PACE-eligible jurisdiction, be current on mortgage and property taxes, and have sufficient equity. Credit requirements are minimal compared to traditional loans. Commercial PACE (C-PACE) has different underwriting focused on property cash flow.
• question: What interest rate does PACE charge? answer: PACE interest rates typically range from 6–9% for residential programs and 5–8% for commercial — generally higher than secured loan rates but lower than unsecured credit cards. The rate is fixed for the full term. Administrative fees (typically 3–5% of the amount financed) are also rolled into the assessment.

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PACE Financing

Property Assessed Clean Energy (PACE) is a financing mechanism that allows property owners to fund energy improvements through a voluntary assessment on their property tax bill. It was created to overcome the upfront cost barrier of solar, efficiency upgrades, and resilience improvements.

How PACE Works

1. Authorization: Your local government establishes a PACE program (or partners with a PACE administrator)
2. Application: You apply for financing for eligible improvements (solar, insulation, HVAC, windows, roofing, water conservation, seismic/wind hardening)
3. Assessment: An assessment is placed on your property, recorded with the county
4. Installation: Improvements are installed by an approved contractor
5. Repayment: You repay through your property tax bill over 10–25 years
6. Transfer: If you sell the property, the assessment stays with the property (the new owner assumes remaining payments)

Two Markets: Residential and Commercial

Residential PACE (R-PACE)

Available in California and Florida as the two largest markets, plus Missouri, Ohio, and several other states. R-PACE has been controversial due to consumer protection concerns.

Key features:

• Minimal credit requirements (property-based underwriting)
• 10–25 year terms
• Interest rates: 6–9%
• No out-of-pocket costs
• Property tax lien secured

Major programs: Ygrene, Renew Financial (now Service Finance), HERO (Renovate America — closed 2022)

Commercial PACE (C-PACE)

Available in 35+ states and D.C. Widely regarded as effective and well-regulated. Used for commercial buildings, multifamily, nonprofits, and industrial properties.

Key features:

• Property and project cash-flow-based underwriting
• 10–30 year terms
• Interest rates: 5–8%
• Can finance 100% of project cost
• Often used for deep retrofits, solar, and new construction

Major programs: Counterpointe Energy, Petros PACE Finance, Greenworks Lending (now Nuveen Green Capital)

Eligible Improvements

| Category | Examples | |----------|---------| | Solar | Rooftop and ground-mount PV systems | | Energy efficiency | HVAC upgrades, insulation, windows, duct sealing, LED lighting | | Water conservation | Low-flow fixtures, irrigation systems, greywater | | Resilience | Hurricane shutters, seismic retrofits, impact-resistant roofing, battery storage | | EV infrastructure | EV charging stations (in some programs) |

PACE vs. Other Financing

| Feature | PACE | Solar Loan | Home Equity Loan | Cash | |---------|:-:|:-:|:-:|:-:| | Upfront cost | $0 | $0 | $0 | Full | | Interest rate | 6–9% | 3–8% | 5–9% | 0% | | Term | 10–25 years | 10–25 years | 5–30 years | N/A | | Credit requirements | Minimal | Moderate–High | High | None | | Transfers with sale | Yes | No | No | N/A | | Tax deductible interest | Possibly (as property tax) | No (unless home equity) | Yes | N/A | | Lien position | Priority (ahead of mortgage) | Unsecured or second lien | Second lien | N/A |

The Controversy

Benefits

• Accessibility: Allows homeowners with limited credit or savings to make improvements
• Long terms: 20–25 year terms can make payments cash-flow positive from day one (savings > payments)
• Transferability: Aligns financing with the property that benefits from improvements
• Job creation: PACE has financed billions in improvements, supporting contractor employment

Criticisms

• Priority lien: PACE assessments have priority over the mortgage. If the homeowner defaults, the PACE administrator gets paid before the mortgage lender. This has caused friction with the mortgage industry and FHFA.
• High costs: Interest rates and fees are higher than alternative financing for creditworthy borrowers. Total cost of financing over 20–25 years can significantly exceed the project cost.
• Consumer protection concerns: Reports of aggressive contractor sales practices, inadequate ability-to-pay assessments, and homeowners who didn't fully understand the product. California enacted AB 1284 (2017) to strengthen R-PACE consumer protections.
• Selling complications: Some buyers are reluctant to purchase a property with an existing PACE assessment. Some mortgage lenders require payoff at closing.

Regulatory Response

• California: Extensive consumer protections enacted — mandatory ability-to-pay assessments, 3-day right to cancel, fee disclosures, verbal confirmation calls
• FHFA: Has expressed concerns about PACE's priority lien status affecting mortgage security. In 2023, FHFA proposed a rule requiring PACE assessments be treated as borrower debt in mortgage underwriting
• CFPB: Consumer Financial Protection Bureau issued guidance treating R-PACE as subject to TILA (Truth in Lending Act) disclosures

Is PACE Right for You?

PACE may be a good fit if:

• You cannot qualify for a low-interest loan due to credit history
• You want zero upfront costs and are comfortable with the long-term repayment
• You're making improvements to a commercial property (C-PACE is well-established)
• You plan to stay in the home long enough for improvements to pay for themselves

Better alternatives may exist if:

• You have good credit (solar loans at 3–5% save thousands in interest vs. PACE at 7–9%)
• You have home equity (HELOC rates are typically lower)
• You're selling the home soon (PACE complicates resale)
• The 25C/25D federal tax credits and utility rebates reduce costs enough for cash purchase

Always compare total cost of ownership between PACE and alternatives before committing. Calculate the total of all payments over the full term, not just the monthly payment.