PACE Financing: Federal Rules for Loans Paid on Your Tax Bill

Published by the Modern Lending Solutions editorial team. Last reviewed: October 30, 2026.

Short answer: PACE (property assessed clean energy) financing pays for home improvements and is repaid as an extra assessment on your property tax bill. Since March 1, 2026, a federal rule has required the creditor, and a PACE company substantially involved in the credit decision, to check that you can repay before you sign, and to give you PACE versions of the Loan Estimate and the Closing Disclosure. Because it is paid with your property taxes, missed PACE payments can put your home at risk the same way unpaid taxes can. This page covers federal law only; other rules may apply where you live. It is general information, not legal or financial advice.

What PACE financing is

Regulation Z defines a PACE transaction as “financing to cover the costs of home improvements that results in a tax assessment on the real property of the consumer”, and a PACE company as a person, other than a natural person or a government unit, that administers the program through which you apply for or get the financing (12 CFR 1026.43(b)(14) and (15), eCFR, text up to date as of October 28, 2026, read October 30, 2026).

The CFPB says you repay a PACE loan through an extra assessment collected with your property taxes, that the U.S. government does not pay for or insure PACE loans, and that, like a traditional property tax lien, you may lose your home if you do not make the payments. It also says you may hear about PACE from door-to-door salespeople or contractors (CFPB, last reviewed September 11, 2024, read October 30, 2026; this page may be out of date).

The federal PACE rule and its status

The CFPB published its final rule on PACE financing in the Federal Register on January 10, 2025 (90 FR 2434), carrying out section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The rule says it is effective March 1, 2026 (Federal Register). The eCFR text of 12 CFR 1026.43 dated March 1, 2026 includes the PACE paragraphs, and a Federal Register search on October 30, 2026 found no later CFPB document delaying or withdrawing the rule. Federal rules may be amended later, so check the current text before you rely on it.

How PACE differs from a loan from a bank

Topic	Federal rule for PACE	Section
Ability to repay	The creditor must make a reasonable and good faith determination that you can repay, using the same factors as for other mortgages, such as income, debts and credit history	1026.43(c), 1026.43(i)(1)
Qualified mortgage	A PACE transaction is not a qualified mortgage	1026.43(i)(2)
Who is responsible	The ability-to-repay rule applies to the creditor and to a PACE company substantially involved in the credit decision, and TILA’s civil liability section applies to that PACE company	1026.43(i)(3)
Loan Estimate	A PACE version with a “PACE Payment” line, the PACE company’s contact details and a “Selling the Property” statement	1026.37(p)
Closing Disclosure	A PACE version naming the PACE company, with partial payment and liability statements in place of the usual ones	1026.38(u)
Escrow for higher-priced loans	The escrow account rule for higher-priced mortgage loans does not apply to PACE transactions	1026.35(b)(2)(i)(E)
Monthly statements	PACE transactions are exempt from the mortgage periodic statement rule	1026.41(e)(7)

Sources: 12 CFR 1026.43 (eCFR), 1026.37 (eCFR), 1026.38 (eCFR), 1026.35 (eCFR) and 1026.41 (eCFR), all up to date as of October 28, 2026. For the general ability-to-repay rule, see the mortgage ability-to-repay rule.

The ability-to-repay check and your escrow account

If you pay your property taxes through a mortgage escrow account, the PACE rule says the creditor must also consider any extra monthly escrow payment you will owe because of the PACE financing, taking into account a cushion of one-sixth of the estimated yearly PACE payments that a servicer may charge under 12 CFR 1024.17(c)(1), unless it reasonably expects no cushion or a different one, and any escrow shortage that may come from when your servicer learns of the PACE financing (12 CFR 1026.43(i)(1)).

This example is only for the math, with example figures, not amounts for any program or home.

Item	Amount
Example yearly PACE payment added to the tax bill	$2,400
Monthly share if paid through a mortgage escrow account: $2,400 / 12	$200
Cushion of one-sixth of the yearly PACE payments: $2,400 / 6	$400

In this example, an escrow payment could rise by about $200 a month for the PACE share alone, and the rule tells the creditor to consider a cushion of up to $400 as well. Your servicer’s escrow analysis sets the real figures. For what happens when an escrow account runs short, see mortgage escrow account shortage. The official comments also say payments on a PACE transaction you already have count as property taxes when a creditor checks your mortgage-related costs for a new loan (Supplement I, comment 43(b)(8)-2, eCFR).

Paying, selling and refinancing

The PACE Loan Estimate must say that the PACE loan will be part of your property tax payment, that it will raise your escrow payment if you have a mortgage with an escrow account, and that if you sell, “the buyer or the buyer’s mortgage lender may require” you to pay off the PACE loan as a condition of the sale (12 CFR 1026.37(p)(2), (4) and (6)). The PACE Closing Disclosure must say, where other law makes you responsible for a shortfall after a foreclosure or tax sale, that you may owe part of the unpaid PACE balance, and that you may want to talk with a lawyer (1026.38(u)(7)).

The CFPB warns that PACE payments raise your property tax bill, that the increase may be large, that you may repay for five, 10 or 20 years, and that a PACE loan on the home may make it harder to sell or refinance. It also says you may have limited options to dispute the work or the costs once you sign up, and suggests shopping around for other contractors and ways to pay before you decide (CFPB, last reviewed September 11, 2024, read October 30, 2026; this page may be out of date).

Other ways to compare

For how a personal loan compares with other ways to pay for solar panels, see solar panel financing vs personal loan. For ways to handle a property tax bill you cannot pay at once, see property tax bill payment options. If someone sold you the work at your home, see canceling a door-to-door sale and its financing. To complain about a creditor or PACE company, use consumerfinance.gov/complaint. For your own case, ask a lawyer; you can look for legal aid through the Legal Services Corporation.

Questions to ask before you sign

Who is the creditor, and who is the PACE company named on the Loan Estimate?
What is the yearly PACE payment, for how long, and what is the total I will repay?
How did you check that I can afford the payments along with my mortgage, taxes and insurance?
If I have an escrow account, when will my servicer learn of the PACE assessment, and what will my new escrow payment be?
What are the late charges, and what happens if I miss a property tax payment?
Must the PACE balance be paid off if I sell or refinance, and is there a charge to pay it off early?
Do I have any right to cancel after signing, and how do I dispute the work if it is not done right?

Checklist

PACE financing is repaid through your property tax bill; unpaid amounts can put the home at risk.
Since March 1, 2026, the creditor must check your ability to repay (12 CFR 1026.43(i)).
Expect a PACE Loan Estimate and a PACE Closing Disclosure.
If you have an escrow account, plan for a higher escrow payment.
Ask whether you must pay it off to sell or refinance, and compare other ways to pay.

Start your loan request How our service works

Sources

Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.

PACE Financing: Federal Rules for Home Improvement Loans Paid Through Your Property Tax Bill