PACE makes holding out for a HERO worth it
PACE allows homeowners to finance home improvements that promote renewable energy, reduce greenhouse gases and energy-saving improvements and allows to them to repay the cost of the improvements via a property tax assessment.
It allows people who might not be able to pay in cash or qualify for a traditional home loan to get what they need and reduce energy and water costs at the same time.
Started in May 2010, it has grown significantly over the past six years. Everything from lawn conversion to solar is fair game for financing. Home projects such as replacing windows, adding solar, replacing a roof, replacing the heating and air conditioning system and even replacing swimming pool equipment are examples of what the program can finance.
PACE has also turned out to be a blessing for the home improvement and construction industry that was decimated from the mortgage crisis and Great Recession. Many contractors are finally seeing people spend money on home improvements again. No proof of income is required and in some cases a person can obtain a loan for these improvements up to 100 percent of the value of the home and easily to 90 percent loan to value, which is virtually unavailable today at most mortgage companies and credit unions.
The credit rating requirements seem to vary a little bit with some of the for-profit finance companies and the nonprofit local government agencies that are making these loans. There are a few qualifying elements that are the same as a regular loan. The borrower cannot have a bankruptcy in the past seven years, the first mortgage loan must be current with no delinquency in the past 12 months and the borrower cannot have a history of property tax delinquencies.
To understand how all this works, I personally applied for this program through one of several finance companies available through the PACE website. I applied online for the HERO Program, put forth out of San Diego by Renovate America.
The loan process was unbelievably simple and fast. Within 10 minutes my loan application was approved for up to $65,000 through some type of artificial intelligence program and I was given a written commitment that expires in two months. All I have to do now is find a licensed contractor and decide which improvements I want to make to our home and I will be lent the money with no payment required until my tax bill is issued in November 2017.
No payments for a year with an interest rate at 8.35 percent and a 4.99 percent fee for 15 to 20 years repayment. No formal appraisal and no proof of income required and no out-of-pocket costs, either. My wife and I are considering making some improvements including the popular solar conversion. We will probably pay cash or finance the improvements through a refinance of our mortgage or possibly do a home equity line of credit because 8.35 percent and nearly 5 points is a higher cost than other types of financing available to me today.
For many people, HERO and some of the other participating PACE financing is the only way of achieving these improvements. My wife and I are just older than most people and have had more time to build up equity.
For another example, my neighbor is 68 and he and his wife own their home free and clear. If they need to borrow $65,000 to modernize their home with state-of-the-art windows and solar to reduce their energy costs, they could do a 15-year fixed-rate $65,000 loan through their credit union at 3.5 percent with no points and very little fees. More paperwork, for sure, but less cost and interest.
To summarize, I believe this program can be great for many people but before you leap, look carefully at all your options and get advice from an expert in real estate and finance. Easy money can be dangerous, so finding the right loan and a local contractor who is ethical and experienced is critical when spending up to 15 percent of your home’s value.