Understanding PACE Financing and Solar Leases: What California Homeowners Need to Know

Improving energy and water efficiency at home is a smart move for both the planet and your wallet. In sunny California, solar panels, energy-efficient furnaces, and other eco-friendly upgrades are increasingly popular. But while these improvements can pay off over time, the upfront cost can be a barrier.

That’s where financing options like PACE (Property Assessed Clean Energy) programs and solar leases come into play. These tools can help homeowners make meaningful upgrades without paying everything out of pocket. But like all financing options, they come with pros, cons, and important fine print.

Let’s break it down.

What Is a PACE Program?

PACE stands for Property Assessed Clean Energy, a financing method that allows homeowners to pay for energy and water-efficient upgrades through a special assessment on their property tax bill.

You may have heard of PACE under names like HERO, CaliforniaFIRST, or Ygrene — all are PACE programs.

Key Features:

Financing covers upgrades like solar panels, EV chargers, HVAC, windows, and water-saving systems.
Repayment is added to your property tax bill, usually over 5–20 years.
No upfront cash is typically required.
Approval is based on home equity and tax payment history — not credit scores.

PACE vs Traditional Loans

Unlike a traditional home equity loan or cash-out refinance, PACE financing:

Doesn’t rely on credit scores or employment history
Offers 100% financing, including fees
May transfer with the property (but not always easily)

However, interest rates tend to be higher — typically 6–9%, compared to 3–5% for conventional loans — and some programs have prepayment penalties.

The Catch: Selling or Refinancing with a PACE Lien

This is the tricky part.

PACE liens are “super-priority” liens, meaning they come before your mortgage in repayment order. That sounds fine — until you try to sell or refinance.

Important considerations:

Most conventional lenders won’t approve a loan on a home with a PACE lien.
Buyers using FHA loans must have the PACE lien paid off before closing.
The lien will show up on title and tax reports, so it can’t be hidden.
Sellers may be required to pay off the lien at close of escrow unless the buyer pays cash or uses non-conventional financing.

Bottom line: If you plan to move or refinance soon, a PACE loan could complicate things.

Disclosure Requirements for PACE

If you’re selling a home with a PACE lien:

It must be disclosed to buyers.
It will appear on the preliminary title report and the Natural Hazard Disclosure (NHD).
Failing to disclose it could open the door to legal liability.

Realtors are encouraged to be proactive in helping clients understand and disclose these assessments.

Who Should Consider PACE Financing?

PACE can be a great tool for:

Homeowners with significant equity who don’t plan to move or refinance soon.
Those who want to install upgrades now and pay over time.
Owners whose PACE program offers subordination agreements (though not recognized by all lenders).

What About Solar Leases?

Solar leases are another popular way to upgrade without upfront costs. In this arrangement:

A third-party company owns and maintains the solar panels.
You pay a monthly lease — ideally less than your old utility bill.
There are typically no tax incentives for you since you don’t own the system.

Selling a Home with a Solar Lease

If your solar panels are leased:

You must disclose the lease.
The buyer needs to qualify for the lease, and it can affect their debt-to-income ratio.
Leases are often recorded on title via a UCC-1 filing, which can slow the sale if not addressed early.

If the buyer doesn’t qualify — or simply doesn’t want to assume the lease — you might need to pay off the remaining lease balance or offer a credit at closing.

Final Thoughts

Energy-efficient upgrades are a smart investment, and programs like PACE and solar leases can make them more accessible. But before signing on, it’s critical to understand how these financing tools can impact your ability to sell or refinance down the road.

If you’re considering one of these programs — or you already have one and are thinking about selling — I’m happy to walk you through your options and help you make the best decision for your situation.

Got Questions About PACE or Solar?
Let’s talk. I’m here to help you navigate the fine print and protect your bottom line.