The Home Energy Renovation Opportunity (HERO) Program is a PACE Program which provides financing for energy-efficient, water-efficient, and renewable energy products for business owners and homeowners in approved communities throughout the United States. It receives financing through the collection of annual property tax payments which are collected by the county where eligibility is confirmed. In some cases, it may be passed on to a new property owner if the current one sells.
Renovate America first developed this program in 2010 using a partnership with the Western Riverside Council of Governments, which is a public agency representing 18 communities in the that California county. Over 85% of the residents are now eligible to access this program. It has also created over 2,400 jobs, $250 million in funding programs, and supports 12,500 homes in total.
Once a business owner or homeowner qualifies for the program, HERO finances 100% of the cost to purchase and install an energy-saving product. Repayment happens through the property tax bills which are made through an impound escrow account.
List of the Pros of the HERO Program
1. It is easy to qualify for this program in eligible areas.
Because homeowners and business owners are financing the cost of these energy-efficient upgrades through their property taxes, there is no need to go through a credit check or access lending products to obtain the needed funds. PACE loans are relatively easy to obtain if needed as well when compared to home equity loans since your FICO credit score is less important to the improvement process. You must be current on all property taxes to qualify in most situations.
The application process is simple with this program. You can even apply for financing online if you prefer. Many homeowners choose to work with an experienced HERO contractor to maximize the value of their project.
2. You will receive 100% financing for the project through the HERO Program.
When you receive an approval for the HERO program, then you will receive 100% financing for the energy-efficient upgrades that you want to make to your home or business. That means you can complete the work without going into a significant level of credit card debt or be forced to pay a higher interest rate. You just repay the amount given to you through the program with your property tax payments.
Since there is no need for a down payment upfront with the HERO Program you can get started on a project quickly without waiting to save up enough money to move it around.
3. It can transfer over to the next owner.
If you decide to sell your home or a business asset that you improved using funds from the HERO Program, then the payments can sometimes transfer over to the next owner during the sale. Although some homeowners may need to pay off the loan first as a condition of the transaction, the loan or payment is attached to the property. Although this may limit the number of potential buyers that are available in some situations, it also means that you are not stuck trying to repay a debt for something that you’re not even using at the moment.
4. This program gives you an opportunity to modernize your home.
Many homeowners take advantage of the HERO Program to upgrade their home to solar, reducing their energy costs each month. Water upgrades are available for this financing option in some states as well. The goal here is to bring older homes into the modern era by giving them the features that they need today without requiring an extensive initial capital investment. Although you become a borrower in this system, the debt is relatively easy to manage in most situations.
5. You will get to save on your utility bills right away.
Many homeowners can take the energy savings that they experience after their HERO Program upgrades to help pay for the work that was finished on their property. In just one month with a solar installation, it is possible for your energy bill to drop below $2 for the entire 30-day period. You can be more comfortable indoors because the funds from HERO are eligible for heating and cooling improvements.
Your windows and doors qualify for this program as well, so does your roofing, and even landscaping improvements have eligibility. Depending on when you complete your project, your first payment might not even be due until the next tax year.
6. It is possible to make unscheduled payments on what you owe.
If you want to avoid a significant increase in your mortgage payments, then you may want to take advantage of an unscheduled payment with this program. You can log into the balance information center for your account to process a payment request, including a pay-down or pay-off statement. You must complete those steps to ensure that the extra money applies as you want instead of it going to your next payment.
7. You can have some time to pay off the loan.
The HERO Program knows that making these improvements to your home or business property can be a significant expense. This loan can be paid over an extended period, sometimes stretching out to as much as 25 years. Because of the structure, the monthly payments that you must make can be kept relatively small. You can also limit the 1-2 payment expense that occurs if you pay through a local collector. As with any lending product, you will pay more in interest if you take longer to repay the debt.
8. There are potential tax credits to consider with the HERO Program.
Some homeowners and business owners may find that this funding could make it easier to qualify for environmental tax credits. If you are interested in this advantage, then it is essential that you check with your tax advisor before finalizing your decision. Because timing is a concern here, PACE makes it possible through HERO to complete a project before any potential credits experience. You can install everything in one year instead of stringing out the project over several since the program simplifies the cash flow issues. Since some credits are only available for the year of the installation, it gives you a chance to pay for every expense to maximize this advantage.
9. The work performed on your property is guaranteed.
When you choose to work with the HERO Program, then you must choose an approved local contractor which has already gone through an extensive vetting process. The appliances that you choose to purchase with these funds must meet every standard for performance and efficiency set by the government. That means any of the work or upgrades you choose for your home or business property are guaranteed to provide a benefit. If they do not work for some reason, then you have some outs available to you to recover some of your costs or have the work redone for you.
List of the Cons of the HERO Program
1. There can be a lot of confusion with the HERO Program.
There are several states which offer programs that have the same or a similar name to this financing project. Washington State has a HERO program that they use for traffic violations. Because there are similar projects available throughout the country, there can be some confusion about where the program is available or who is eligible. Misinformation online suggests that this program is only open to households living in California or Missouri. Make sure that you are looking at the financing package version to ensure that you can get what you need.
2. The repayment options may not be affordable for all homeowners.
If you pay your property taxes through a local collector and choose the HERO program, then your required payment will appear as a line item on your tax bill. You will need to look over the final payment summary after completing your project to see how much you’ll need to pay each year to stay current. That amount is necessary for 1-2 installments based on how and when you pay your taxes, so the charge can be quite high.
If you pay through an escrow impound account, then a monthly charge will increase the monthly mortgage payment you make. Because the amount due might not be until the next tax year, that first year of repaying the project could see your payments increase by double of what you were experiencing.
3. There can be significant conflicts of interest with the HERO Program.
PACE financing often goes through the contractors who will work on your project. This structure means that the access point for lending has an incentive to promote expensive upgrades for your property. Although it provides more convenience since you do not need to juggle a lender and a contractor simultaneously, the contractor doesn’t know what you can actually afford. Since you can fund almost anything with this financing package, it is up to you to make a smart decision.
That’s not to say every contractor using this program is going to try to mislead you. Most are honest about the pros and cons of your proposed project. It is possible for some to “bend the truth” some to obtain a more lucrative job for your property.
4. Some contractors receive referral bonuses.
In addition to receiving payment for the work they perform on your property, some contractors who are active in the HERO Program also receive additional referral fees from the lender when they arrange funding for the work. That means there is a potential conflict of interest with this disadvantage as well because if the provider can charge you more, then they will earn a greater portion of the commission from your lending package.
5. Payment shock is a real problem with the HERO Program.
Even when homeowners and business owners take every meaningful step necessary to protect their finances, payment shock is one of the most significant disadvantages to consider with this program. The cost can be a burden because most people think in terms of monthly payments. If you pay through a property assessment or a local collector, then the entire amount due for the year is billed with your tax payment notice. Those inflated payments can be a surprise expense that some people may not be able to afford.
Even when you take a long-term financing package and pay it through your monthly mortgage payment, the extra funds can be a burden if your finances change for some reason.
6. The interest costs of HERO funding are something you must consider.
The advantage of HERO funding is that the credit standards to receive lending products are more relaxed than they would be with a line of credit or a home equity loan. Because lenders are taking a bigger risk by providing funds in this way, they will typically charge a higher interest rate on the debt you take on with this project. When you have good-to-excellent credit, then you might qualify for a better deal outside of the program with an alternative lending product. PACE loans are helpful, but they are not always the cheapest options that are on the market.
7. There is an increased risk of foreclosure to consider with this program.
PACE loans (and therefore funds through the HERO Program) are secured by your home, business, or property. If you do not make the required payments from your lending package, that it is possible to lose your home in foreclosure. In most situations, this financing moves into the first position of priority, which means they are even in front of your mortgage lender. If you make your regular mortgage payments as agreed but do not pay PACE, then they can start the legal proceedings to get you out of your home. Other forms of home lending products do not offer this disadvantage.
8. You have limits on the total amount that you can borrow through the HERO Program.
A HERO Program loan can cover up to 100% of the cost of having energy-efficient or water-saving upgrades made to your home. They provide a fixed rate for the amount that you borrow. Both are significant benefits. The disadvantage here is that your total loan package is limited to 15% of your overall home value.
The total retail cost of a 22.4-kilowatt grid-tied solar system with Enphase IQ7, microinverters, and 80 Astronergy 280-watt panels is currently more than $30,000. Adding labor to that expense could add another $10,000+ to it. If the value of your home is only $150,000, then there is no way for you to fund the entire project through the HERO Program. That is why those in smaller homes tend to use this financing for appliances and small upgrades instead of the money-saving options that are available to larger or more valuable structures.
9. There is no guarantee of approval.
Although the HERO Program has lax credit standards when compared to other lending products, you are not guaranteed funding with your application. The approval system works by evaluating your debt payment history while evaluating the amount of equity that you have in your home. If you recently purchased the property or experienced issues with other creditors, then the program might choose to deny your application.
10. It can become difficult to sell your house with a recent loan.
Most financial advisors recommend that homeowners stay on their property for at least 5 years to make sure that they receive the cost-savings benefits from their upgrade. If you have an extensive loan on the property, then it can transfer to the buyer when you sell – but it also makes the purchasing process take a lot more time to complete. If there is a highly competitive market that favors the buyer instead of the seller, you might find yourself stuck with a property that you’re not really using.
11. Buyers may not be able to secure a mortgage for a property with this financing.
Because the HERO Program financing takes the first priority, Fannie Mae and Freddie Mac will not purchase a mortgage that includes this type of loan. That means some buyers who qualify for a lending package and want to purchase your property may not receive the final approval to do so. When you add in the 6.95% administrative fee that you’ll pay, along with an interest rate that can be in the double digits, it may not be worth the price for the savings you can achieve.
The pros and cons of the HERO Program can help you to pay for a home or structural upgrade this year to take advantage of potential tax benefits and environmental credits. It is a way to add new features and technologies to your property that can reduce the amount of energy you consume. If you can manage the costs of the project you have in mind and don’t have great credit, then the advantages are worth considering. If not, then you might find a cheaper option with less risk available through a more traditional loan or line of credit.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.