National · Rebates, tax credits, and financing
How does PACE financing work, and what should I check before signing?
Direct answer
PACE financing pays for home improvements through an assessment on your property tax bill, secured by a lien on your home. Missed payments can lead to foreclosure or a tax sale. Before signing, compare the full cost, check whether your mortgage permits the lien, and confirm what happens when you sell or refinance. Federal Regulation Z ability-to-repay requirements apply to covered residential PACE transactions from March 1, 2026; they do not make PACE government-insured or guarantee that you can afford it.
This national guide is for homeowners considering PACE financing, sellers and buyers of homes with existing PACE assessments, and professionals advising them.
It explains how the financing works, the main risks the official sources identify, and what to check before signing.
Before applying, confirm the rules of any particular PACE program.
This guide does not interpret any specific mortgage contract or PACE agreement.
It does not address commercial PACE, property tax law in any specific state, or tax questions beyond the financing itself.
Check the lien and the full repayment cost
PACE is borrowing secured by the property, even though repayment appears on a tax bill. The CFPB’s consumer guidance explains that states authorize programs and local governments or their contractors administer them. The federal government does not pay for or insure the financing. Verify that a residential program is active for your address; commercial PACE is a different product.
Ask for the interest rate, all fees, annual assessment, term, total repayment, any balloon payment, and cancellation instructions in writing. Compare another contractor and other financing options. Energy savings or rebates may not cover the payment, and a dispute over the work does not automatically suspend the tax assessment.
Check your mortgage and escrow
The FTC’s financing guidance explains that some mortgage contracts prohibit the type of lien PACE creates. A PACE tax lien can take priority over the mortgage. Ask your mortgage servicer whether the proposed assessment is allowed before signing.
If taxes are paid through escrow, the servicer will generally add the assessment to your escrow payment. Request a written estimate of the new monthly payment and any shortage adjustment. If you pay taxes directly, budget for the full bill. Delinquent assessments, penalties, and a tax sale can put both your home and equity at risk.
Plan for a sale or refinance
An assessment can remain with the property, but do not assume a buyer or mortgage lender will accept it. The CFPB warns that outstanding PACE financing can make a sale or refinance difficult. A transaction may require payoff at closing instead.
Get a payoff statement, check early-payment fees, and ask the proposed lender whether an outstanding assessment is acceptable. Sellers should resolve payoff or transfer terms before listing; buyers should obtain the assessment balance, remaining term, payment history, and lender acceptance before committing.
Federal protections and program limits
The CFPB’s final rule took effect March 1, 2026. Regulation Z §1026.43 defines PACE transactions in (b)(15) and applies ability-to-repay requirements, including additional escrow considerations in (i). These requirements apply to the creditor and a PACE company substantially involved in the credit decision. They do not replace state eligibility rules, contract terms, or your own budget check.
California’s PACE Loss Reserve Program addresses certain participating mortgage-lender losses. It does not reimburse homeowners for PACE payments. The California Attorney General’s 2022 Ygrene settlement announcement illustrates the risks of misleading claims about consent, liens, and selling or refinancing.
Before signing or resolving a problem
- Verify the residential program and administrator for your address, and compare written offers.
- Confirm the lien, total cost, cancellation deadline, and mortgage/escrow treatment in writing.
- Separate financing approval from any HOA approval, permits, inspection, and utility connection required for the work.
- Keep the documents listed below. If selling or buying, have the transaction address who pays the outstanding assessment.
- Report suspected deceptive sales practices to the FTC or the appropriate state consumer-protection office. A mortgage professional can confirm lender requirements; a real-estate attorney can help resolve disputed contract or transfer terms.
Records and documents checklist
- The PACE contract and any disclosure forms you signed, including the interest rate, fees, term, and any right-to-cancel provisions.
- The property tax bill showing the PACE assessment, and any correspondence with the program administrator about payoff amounts.
- Written answers from the PACE company about the lien, early payoff fees, and sale or refinance effects.
- Written confirmation from your mortgage servicer about whether the assessment will be added to escrow and how your payment will change.
- Any payoff statement or transfer documentation if you sell a home with an outstanding assessment.
- Contractor estimates and any written claims about energy savings or "pays for itself" projections.
Official sources
Frequently asked questions
Does the PACE assessment stay with the house if I sell?
An assessment can stay with the property, but a buyer’s lender may require it to be paid off. Obtain a payoff statement and confirm the assessment’s treatment with the program administrator, lender, and sale agreement before relying on transfer to the buyer.
Can I refinance or get a new mortgage with a PACE assessment on my home?
Often not without difficulty. The CFPB advises that most lenders will not refinance your mortgage or give you a new mortgage while a PACE loan is outstanding, and the FTC notes that some mortgage contracts may not allow adding the type of lien PACE places on the property, partly because a PACE lien can take priority over the mortgage. Check your mortgage contract and ask lenders directly.
Is PACE financing regulated like a regular loan?
Covered residential PACE transactions are subject to Regulation Z ability-to-repay requirements from March 1, 2026, including PACE-specific escrow considerations and civil liability. State and local program rules still matter, and the federal government does not pay for or insure PACE loans.