Solar adoption has surged across the U.S., driven by federal tax credits, rising energy bills, and an increased push for sustainability. Many homeowners use
PACE loans (Property Assessed Clean Energy) to finance solar panels, HVAC upgrades, roofing, and energy-efficient improvements. But PACE financing works differently from traditional loans — and it can significantly impact mortgage qualification, refinancing, and home affordability. Before installing a solar system or applying for PACE financing, homeowners should estimate mortgage impacts using a home loan calculator (
https://calculatingamortgageloan.com/home-loan-calculator/) to understand whether the added assessment fits their financial plan.
Section 1: What is a PACE loan?
PACE loans allow homeowners to finance solar panels and energy upgrades through
property tax assessments rather than a standard credit-based loan.
Key features:
- No money down
- Approval based on home equity, not credit score
- Payments added to property tax bill
- Financed over 10–30 years
- Easily transferable to new owners (depending on lender acceptance)
PACE is attractive because approval is fast — but the long-term cost can be substantial.
Section 2: How PACE loans work with property taxes
Unlike personal or home improvement loans, PACE financing becomes a
priority tax lien on the property.
Your property tax bill will include:
- Base property taxes
- PACE annual repayment amount
- Administrative fees
Example:
Annual PACE payment: $2,800
Monthly impact:
[
2,800 ÷ 12 ≈ 233/mo
] This amount becomes part of the total housing cost that lenders use in your DTI calculation.
Section 3: Mortgage impact of PACE financing
Most buyers don’t realize that PACE:
✔ Increases DTI
Lenders must include the annual PACE payment in mortgage calculations.
✔ Reduces borrowing power
Higher DTI = smaller mortgage approval amount.
✔ Creates complications during refinancing
Some lenders will not refinance homes with outstanding PACE liens.
✔ Can reduce buyer demand on resale
Buyers may avoid homes with higher property taxes.
✔ May delay closing
Underwriters require additional documentation.
Actionable Tip: Run full-payment comparisons using a mortgage calculator (
https://calculatingamortgageloan.com/mortgage-calculator/) before committing to PACE financing.
Section 4: PACE loan vs traditional solar financing
PACE Loan Advantages:
- No credit requirement
- No upfront cost
- Long repayment terms
- Potentially transferable at sale
PACE Loan Disadvantages:
- Increases property tax bill
- Higher interest rates
- Complications with mortgage underwriting
- Some lenders refuse PACE-encumbered homes
- Harder FHA, VA, and USDA approval
Traditional Solar Loan Advantages:
- Lower interest
- Easier mortgage qualification
- No tax lien
Traditional Loan Disadvantages:
- Credit score required
- Monthly payments separate from taxes
- Not transferable automatically
PACE works well for homeowners who plan to stay long-term, but not for buyers planning to move within a few years.
Section 5: Example — mortgage calculation with and without PACE
Scenario:
Home price: $470,000
Down payment: 10%
Loan amount: $423,000
Rate: 6.75%
Term: 30 years
Mortgage (P&I):
≈ $2,745/mo
Taxes: $350/mo
Insurance: $120/mo
Total baseline payment:
$3,215/moAdd PACE loan:
Annual PACE payment: $3,000
Monthly: $250
New total payment:
[
3,215 + 250 = 3,465/mo
]
Impact on DTI:
Income: $7,000/mo Without PACE:
[
3,215 ÷ 7,000 = 45.9% DTI
] With PACE:
[
3,465 ÷ 7,000 = 49.5% DTI
] For many buyers, that extra 4% DTI is enough to trigger a loan denial.
Section 6: Do FHA, VA, or conventional loans accept PACE?
FHA Loans
Do
not allow PACE liens to remain in first position.
PACE must be paid off before closing.
VA Loans
Generally require the PACE lien to be removed.
USDA Loans
PACE liens are not allowed.
Conventional Loans
Fannie Mae and Freddie Mac allow PACE
only if:
- The PACE lien does not take first-lien priority
- Payments are included in DTI
- Local county rules support it
In most counties, PACE maintains priority — meaning conventional lenders often reject it.
Section 7: Selling a home with a PACE loan
PACE loans can transfer to the next homeowner —
but only if the buyer’s lender accepts it.Buyer lender rejection = PACE payoff required
This means the seller must pay off the entire PACE balance at closing.
Example:
PACE balance: $17,000
Seller wants to transfer it.
Buyer’s lender says “No.”
Seller must pay $17,000 at close — or lose the sale. Because of this, PACE homes often sit longer on the market.
Section 8: Should you choose a PACE loan?
PACE is smart when:
✔ You don’t qualify for a traditional loan
✔ You plan to stay in the home long-term
✔ You want immediate energy savings
✔ You accept higher taxes
PACE is a bad choice when:
You plan to refinance soon
You plan to sell within 5–8 years
Your DTI is already high
You want the best mortgage rate PACE simplifies installation — but complicates future financing.
Conclusion
PACE loans make solar panels and energy improvements accessible, but they also raise taxes, increase DTI, and complicate future mortgage options. Before choosing PACE financing, homeowners should model how the added property tax affects mortgage affordability using tools like a mortgage calculator (
https://calculatingamortgageloan.com/mortgage-calculator/) and a home loan calculator.
With smart planning, solar can be a strong long-term investment — but only when buyers fully understand how PACE financing affects their mortgage and future resale value.
FAQs
1. Are PACE loans good for solar panels?
Yes — if you plan to stay long-term and don’t need to refinance soon.
2. Do PACE loans hurt mortgage approval?
Yes — they raise DTI and restrict loan options.
3. Can I sell a home with a PACE loan?
Yes — but many lenders require payoff before closing.
4. Is PACE financing tax deductible?
Often no — because it’s an assessment, not interest.
5. Are PACE interest rates high?
Typically higher than standard solar loans.
