Your family’s financial bandwidth doesn’t have to get in the way of your quest to energy efficiency. Applying for a Home Energy Renovation Opportunity (HERO) loan could give you the cash you need to commit to sustainable and energy efficient choices for your home.
But it’s worth remembering that there could be a multitude of better options that might work better for your home. If a solar company is offering this type of loan to you, it’s worth getting a second opinion and reading up on how HERO loans work and the pros and cons. We’ll review what a HERO loan is and some of the advantages and disadvantages here.
KC Solar recommends only entering into a HERO Loan agreement if you are certain you will be able to quickly pay off the debt.
The HERO Loan is a loan type that is supported by local governments who provide the initial funds through the Property Assessed Clean Energy (PACE) program. Currently, the PACE program is only available in three states nationwide, including most of Missouri.
Find out the availability of HERO loans in your areas, and keep reading to learn more about HERO loans.
How to Meet Eligibility for HERO Loans
Once eligible for the loan, HERO finances 100% of the cost to implement the new energy systems in your home, but the exact requirements may vary according to the property’s area.
The four main criteria to get approved are:
- The home’s equity
- Household income
- Debt obligations
- Product eligibility
There is not a long underwriting process with HERO loans like regular mortgages. And good credit is not usually a factor because of the nature of the loan.
In general, only water-efficient, energy-efficient or hurricane-protection improvements are allowed under the HERO loan.
The most-implemented improvements include:
- Central heating and air conditioning, including duct replacement
- Cool roofs
- Doors and windows
- Solar panels
Once approved for the loan, there are specific products that must be used in the building process in order to be eligible and covered by the loan. There are more than 60 types of products that qualify for this financing, but coordination between contractor and officer will be important ensuring the renovations meet all the criteria.
HERO Loan Disadvantages
PACE and its HERO loan program have recently been noted by the solar community as coming with many strings attached, so it’s important to do your research.
The verifiable ease of receiving the loan — which initially was intentional, encouraging more homeowners to switch to solar — has become a vehicle for some solar companies to take advantage of their customers by saddling them with an unaffordable loan and giving them inefficient and low-quality implementations.
This link to contractor fraud in a notable amount of cases makes it extremely important to read up on the history and implementation of HERO loans with the contractor offering the option.
We at KC Solar only mention the HERO program as a potential option to cover 20-30% of the cost to get the homeowner started. But you should only consider it if paying it off would be quick and easy.
In the view of the lender, they may be hesitant to hit “send” on a HERO loan. Especially if the property has other loans still unpaid in addition to the HERO loan. Generally, if the property owner is late to a payment, the HERO loan is the first in line to receive those funds once they are available because government-backed loans must take precedence over other basic loans.
Another factor to consider is how that could translate in reselling the home. Lenders may be hesitant to approve loans to buy homes with HERO loans attached.
Other disadvantages include:
- A significant amount of administrative work
- Portable items like lightbulbs and refrigerators cannot be covered by the loan
- Does not allow for investments below $2,500
It’s also important to look into the fine print of what is and what isn’t tax deductible according to your area laws. It’s not a guarantee that there will be some savings garnered during the duration of the loan — at least not from tax write-offs.
KC Solar can offer $0 down on solar loans and achieve the highest standards for your home. We can work with you to figure out the most affordable and efficient road to take in your home improvement journey.
Paying Back the HERO Loan
After your project is complete, the contractor is paid through the loan and you will begin paying the funds back through your property tax assessment on your property tax bill. In this way, your payment is spread over many years and will generally not require an upfront payment.
The general payback period can range from 5-25 years depending on the amount of financing involved.
As the payments are added onto your tax bill, these costs are able to be affected by deductions or rebates available to you depending on the area. The interest on the payments are generally tax deductible, but all property owners should consult a tax advisor or see their area guidelines before taking the complicated process at face value.
The deductions along with the potential savings earned through using energy efficient systems can combine to offset the long-term cost of the loan.
The repercussions to missing the loan payments are similar to the consequences of not meeting any other tax bill and are subject to the laws in the area of the property.
Unlike other loans, the HERO loan can be transferred to new owners of the home and does not need to be paid in full once sold or even refinanced. This is because the HERO loan is tied to the property instead of an individual owner. Therefore, the payments are tacked onto the property taxes unlike regular mortgage payments.
The ability to transfer the loan to new owners provides incentives for more property owners to switch to energy efficient systems. This is because many homeowners who want energy efficiency benefits are interested in selling their homes within a shorter amount of time than most loans will allow.
KC Solar Has You Covered
We want to help you in your journey to energy efficiency! KC Solar offers $0 down on solar loans and can provide high quality and high-efficiency systems to ensure you save and are satisfied.