How does PACE financing work, and what should I check before signing?

What the rule says

PACE — Property Assessed Clean Energy — is a way to borrow money for home improvements that is repaid through your property tax bill, not to a bank. As the Consumer Financial Protection Bureau (CFPB) explains, a PACE loan "gives you a way to borrow money for home improvements by increasing your property tax payment": you pay it back through "an additional assessment that is collected with your property taxes," and "like a traditional property tax lien, you may lose your home if you don't make the payments." PACE programs are approved by some states and run by local government, or a private company hired by local government, and the CFPB notes that the U.S. government does not pay for or insure PACE loans.

PACE is not a traditional loan in another sense, too. The Federal Trade Commission (FTC) explains that with PACE financing "your county or state doesn't lend you the money" — contractors or home improvement companies that sell solar panels and other efficiency improvements offer the financing, "and a property tax lien is placed on your home. You repay the lien by paying an extra amount every time you pay your property tax bill. You must pay your property tax bill — with the extra amount included — on time when it's due to avoid default and foreclosure." The FTC adds that only a few states participate in PACE programs.

Since March 1, 2026, residential PACE transactions have been subject to a federal ability-to-repay rule. The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) directed the CFPB to prescribe ability-to-repay rules for PACE financing and to apply the civil-liability provisions of the Truth in Lending Act (TILA) for violations. The CFPB's final rule implementing that direction — published January 10, 2025 (90 FR 2434) and effective March 1, 2026 — amends Regulation Z, including the definition of credit, TILA-RESPA integrated disclosure requirements, and an ability-to-repay provision specific to PACE transactions (12 CFR 1026.43(i)). In the CFPB's own research, PACE loans "cause an increase in negative credit outcomes, particularly mortgage delinquency."

Which authority controls

PACE sits at the intersection of state and local law, federal consumer-finance regulation, and the contract itself.

• State and local law creates the programs. States authorize PACE, and local governments (or private companies they hire) administer it, per the CFPB. Program rules differ by state. In Missouri, the statewide Show Me PACE program describes PACE as a financing mechanism authorized by Missouri statute, repaid with an annual assessment on the property, using all private capital, with lenders able to offer 100 percent upfront financing through fixed-rate loans for up to 20 years and a requirement that project benefits exceed costs; the program now focuses on commercial properties and maintains separate resources for existing residential PACE assessments and payoffs. In California, the state treasurer's California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) administers the PACE Loss Reserve Program, which CAEATFA says is "designed to mitigate the potential risk to mortgage lenders associated with residential PACE financing."
• Federal law now sets floor protections for residential PACE. EGRRCPA section 307 required the CFPB to write ability-to-repay rules, and the December 17, 2024 final rule (effective March 1, 2026) implements it, per the CFPB's final-rule page and its compliance resources page, which maps the new provisions across Regulation Z (12 CFR 1026.2(a)(14), 1026.37, 1026.38, 1026.43(b) and (i)).
• Enforcement is shared. The FTC and state attorneys general police PACE marketing. In October 2022, the California Attorney General and the FTC announced a settlement with Ygrene Energy Fund, a clean energy financing company, over alleged misconduct in administering PACE programs: forgery, high-pressure sales tactics, impersonating consumers to obtain consent, and misrepresentations about consumers' ability to sell or refinance before paying off the loan. The California Attorney General noted that a PACE loan "can make it more difficult for a homeowner to sell or refinance their home," and that California began licensing PACE program administrators in 2017 amid consumer protection concerns.

What may still be required or restricted

• Mortgage contracts and escrow. The FTC warns that some mortgage contracts may not allow adding the type of lien PACE places on the property, in part because a PACE lien "takes priority over your home mortgage — which means, if you go into default or foreclosure, the PACE lien gets paid off before your mortgage does." The CFPB adds that mortgage servicers treat PACE payments like property taxes: if you have an escrow account, most servicers will add the PACE payments to it, raising your monthly mortgage payment.
• Refinancing and new mortgages. Most lenders will not refinance your mortgage or make a new mortgage while a PACE loan is outstanding, according to the CFPB's consumer guidance. Ask lenders directly, and ask the PACE company whether the lien can affect your ability to refinance or sell, as the FTC recommends.
• Selling the home. The assessment generally runs with the property. The CFPB states that when you sell before the PACE loan is paid off, "the buyer is responsible for continuing the PACE payments," and because most lenders will not make a mortgage to a buyer when a PACE loan is on the house, "this may limit the number of buyers who will be willing to purchase your home if you cannot afford to pay the PACE loan off." Some sales pay the assessment off at closing instead — confirm the payoff amount with the program administrator.
• Tax sale exposure. If the home goes to tax sale, the tax authority collects unpaid taxes and delinquent PACE payments with penalties before the mortgage company is paid, which can consume home equity (CFPB).
• Contractor claims and scams. The CFPB cautions that salespeople may tell you improvements "pay for themselves" in lower utility bills or rebates "but are not required to prove" it, and for some projects the statements may not be true. The FTC's consumer alert on solar and clean energy scams warns that scammers may pose as government or utility representatives while promising free or low-cost systems or huge rebates, and that anyone who pressures you into a contract or demands immediate payment is likely a scammer.

Facts that could change the answer

• Whether your state and locality even have a residential PACE program. The FTC describes PACE as available in "a few" states; Missouri's statewide program now focuses on commercial properties, and some California localities terminated their PACE programs amid consumer protection concerns (California Attorney General).
• Program terms. Term length (commonly 5, 10, or 20 years), interest rate, fees, eligible improvements, payoff and transfer rules, and right-to-cancel provisions all come from the program and the contract (CFPB; FTC).
• Your mortgage contract and servicer. Whether the lien is permitted and how the assessment is escrowed changes the real cost of PACE for your household (FTC; CFPB).
• The new federal rule's implementation. The Regulation Z ability-to-repay requirements for PACE took effect March 1, 2026; confirm with the lender or program administrator how the rule's disclosure and underwriting requirements apply to your transaction (CFPB).
• Property type. Residential PACE rules differ from commercial PACE, and eligibility usually turns on the program's own definitions (Show Me PACE; CAEATFA).

Practical decision path

Before signing a PACE contract: (1) Shop around — the CFPB says you may have other ways to finance upgrades, such as a home equity loan or financing from a bank or credit union. (2) Get answers in writing to the FTC's questions: what you pay up front, the annual percentage rate, how payments are calculated, whether payments change, whether there is a balloon payment, how long you pay, whether a lien is placed on your home or system, and whether you have a right to cancel and the deadline. (3) Ask the PACE company specifically whether your mortgage company will allow the lien, whether the lien can affect refinancing or a sale, and whether early payoff carries fees (FTC). (4) Confirm with your mortgage servicer how the assessment will be collected — escrow will raise your monthly payment (CFPB). (5) Treat "pays for itself" claims as unproven unless you have written, verified estimates (CFPB). (6) Verify the program is active in your jurisdiction and the administrator is authorized or licensed (California Attorney General).

If you own a home with a PACE assessment: Get a payoff statement from the program administrator, check your mortgage contract and escrow treatment, and ask the administrator whether the assessment transfers to a buyer or must be paid off at sale before you list the home (CFPB; FTC).

If you are buying a home with a PACE assessment: Confirm the assessment amount, remaining term, and payment history with the program administrator and the tax authority, and confirm with your lender that the property qualifies for a mortgage with the assessment in place (CFPB).

If you suspect misconduct: The FTC and state attorneys general investigate abusive PACE marketing — report suspicious clean-energy financing offers to the FTC (FTC consumer alert; California Attorney General).

Records to keep

Keep the PACE contract and disclosures (including any TILA-RESPA integrated disclosure forms for the transaction), the property tax bill showing the assessment, payoff statements, written answers from the PACE company about the lien and payoff, correspondence with your mortgage servicer about escrow, contractor estimates and any written savings claims, and any sale or transfer documentation.

When professional advice may help

A real estate attorney can review how an outstanding PACE assessment should be handled in your sale contract, and a mortgage professional can confirm whether your contract and lender tolerate the lien. The program administrator and local tax authority are the right sources for payoff amounts and assessment records. Before work begins, obtain the written requirement from the tax authority or program administrator and keep the record.