I just attended a meeting today in which PACE loans were discussed. For some, these are a great option, but everyone should understand the program in it’s entirety and the repercussions of using such a loan. Many of the very people who promote these loans have not been trained to give the entire picture, so they may not even know the program as they should.
PACE loans are energy efficient loans that are paid by attaching the loan to your property tax bill. This, in and of itself, might be fine if you are staying in your home during the entire time the loan is in place. However, if you plan on selling while the loan is in place, you are very apt to experience some hurdles.
Government back agencies have said that they will not loan on a property that has a PACE loan on it. That means that if you sell your home, you must pay off the PACE loan before a new loan can be put in place. This can be a significant burden if yours is a recent purchase and there isn’t much equity yet. Also, most PACE loans have an early payoff fee of up to 3%. So, not only are you forced to pay off the loan, but the additional fee as well.
When you are being approached by a salesperson to use a PACE loan, be sure to get a quote from him without using the PACE program – you might find a significant difference in cost. You also would be smart to get other bids without the PACE loan.
If you purchase a “flipped” property with a PACE loan, here is something to consider: the contractor borrowed the money to improve the home. However, you are the one that will pay for that loan via your tax bill. In addition, you are paying more for the property because it has been updated. Essentially, you are paying for those updates twice.
In conclusion, just be careful. This loan may work for you, but be knowledgeable about what you are agreeing to and the repercussions of that decision.