How to Refinance a Home with a (PACE) HERO loan

Were you shocked after you received your first or second tax bill since participating in the PACE HERO or YGrene loan program?

Your participation in the Property Assessed Clean Energy (PACE) Home Energy Renovation Opportunity (HERO) program caused a steep increase in your property taxes. You will either see a line item titled “HERO FINANCING” on your property tax bill or your lender has increased your monthly mortgage payment to include the amount due for HERO financing.

This program sounds great … “Energy Savings” … “Improve your Home Value” … “Nothing Down” but the truth is that this program is no better than a hard money loan. The lowest rate I have seen on this program is 8.75% and they charge an admin fee of typically $3,000 to $4,000. Many homeowners have also shared with me that they were told their payment would be tax deductible. If you read IRS Topic 503 is seems pretty clear that it is not tax deductible (but please consult with your CPA).

Until recently, if you had an existing energy efficient loan through HERO or PACE, you could not refinance your mortgage. The reason for this, was because when your PACE (HERO) assessment property taxes were collected, the PACE loan was placed in the first position because existing bank regulations would not allow your first mortgage to be placed in the 2nd lien position.

This changed for the better, however, when the White House released its Clean Energy Savings For All Initiative mandating the VA and FHA alter their requirements to allow you, the homeowner with an existing PACE (HERO) loan or lien on title, to refinance your mortgage or allow you to buy a home that has a PACE lien on title.

Unfortunately, many lenders still choose to not participate in the “Clean Energy Savings for All” program. If you’ve tried to refinance your home with a HERO lien you may have already experienced a lender who claims it can’t be done. If you’re in this situation, call me. I have three programs to refinance a home with a PACE (HERO) loan. These programs:

1. Allow you to refinance your mortgage and move your PACE (HERO) assessment to the second position (Although with the high interest rate from the PACE (HERO) programs that probably will not make the most financial sense.)
2. Enable you to use the Fannie Mae HomeStyle Energy Mortgage program, through which I can refinance your mortgage and pay off the PACE (HERO) assessment as a rate & term loan (Which will typically have lower rates than a cash out loan.)
3. Refinance your mortgage and pay off your PACE (HERO) assessment and other debts with a cash out loan.

I am one of the few mortgage lenders in California that can help homeowners refinance a home with a PACE (HERO) loan. Call me today at (888) 777-3671 or fill out the quote request so we can look into how we can get you out of this bad program, lower your payments, and solidify your tax deduction.

Here are some additional articles about PACE (HERO) from title companies you may find of interest:
https://www.equitytitle.com/docs/librariesprovider47/education-equitytitle/general/heros-and-pace-loans-(s15-12).pdf?sfvrsn=2
https://wrtca.com/pace-loans-need-know/

FHA UPDATE

FHA will now allow borrowers to refinance paying off a PACE obligation as a rate and term refinance.

FHA issued Mortgagee Letter 2017-18 , setting forth revised policies for insuring mortgages secured by 1- to 4- family properties encumbered with Property Assessed Clean Energy (PACE) obligations. Per the Mortgagee Letter, properties encumbered with a PACE obligation will no longer be eligible for FHA-insured forward mortgages. The Mortgagee Letter also clarifies that PACE obligations are existing debt that may be paid off using a Rate and Term Refinance. Current policies allowing the use of a Cash-Out refinance to pay off PACE obligations remain unchanged.

The revised policies are effective for case numbers issued on or after January 6, 2018.