What is the Effect of a PACE Loan on a Real Estate Closing?

What is the Effect of a PACE Loan on a Real Estate Closing?

A Property Assessed Clean Energy (PACE) loan is a type of non-traditional loan that allows homeowners to finance energy-efficiency and renewable-energy projects. The loans are usually repaid through property taxes, so the homeowner does not have to worry about making separate monthly payments. PACE loans are available in many states, including here in Florida, and they can be used to finance a wide range of projects, including solar panels, wind turbines, and energy-efficiency upgrades.

These loans were put in place to promote green energy and energy efficiency.

How Does a PACE Loan Work?

PACE loans are unique in that they are attached to the property rather than the individual. This means that as long as the property exists and the loan is current, the loan remains in place. If the property is sold, the loan goes with it to the new owner.

As we mentioned earlier, PACE loans are available for both energy-efficient home renovations and upgrades. These renovations and upgrades can include new windows, insulation, a new roof, a new heating and cooling system, or solar energy installations. PACE loans, however, have a minimum lendable amount of $2,500.

What are the Benefits of a PACE Loan?

The benefits of a Property Assessed Clean Energy (PACE) loan include:

  • Portable – the loan travels with the property and is not tied to the owner’s credit score;
  • Pre-funded – the financing for the project is secured upfront, as there is no need for a down payment;
  • Good rates – PACE loans are typically much less expensive than traditional financing options, such as home equity loans or credit cards.

Given the Above Benefits, Why Do You Need to Consider a PACE Loan on Your Real Estate Closing?

The FHA, or Federal Housing Administration, insures mortgages against default. This means that if the borrower of a mortgage insured by the FHA fails to make their payments, the FHA will step in and pay the lender what the borrower owes. Many lenders are hesitant to give out mortgages that are not insured by the FHA, because they know that they will not be able to recover any losses if the borrower defaults on their payments.

So, how does this relate to PACE loans? The FHA does not insure mortgages on homes that have PACE liens. As such, PACE loans can cause problems with securing a loan when a home with a PACE lien is being purchased.

How Can You Protect Yourself Before and During a Real Estate Closing in Florida?

The effect of a PACE loan on a real estate closing can be significant. So it is important to understand the implications of taking this type of loan before signing any paperwork. For example, the loan may need to be paid off in full before the sale can close, which could delay or even prevent the sale from going through. Additionally, a PACE loan may need to be disclosed on the settlement statement, which could cause confusion among the parties involved in the transaction.

As such, if you are thinking about buying (or selling) a home, be sure to consult with a qualified real estate attorney at Adam Law Group to get our advice on what to do given your particular situation. Our attorneys are always available and would be happy to help.