A HERO is a Home Energy Renovation Opportunity loan, sometimes known as PACE (Property Assessed Clean Energy) loan. These loans give homeowners access to 100% financing for energy-efficient, renewable energy, and water-conserving home improvements. It is a fixed-rate loan paid through an extra charge on the property taxes. While the HERO loan makes it easy to finance things like solar power, or even a more efficient heat and air system, there are some drawbacks.
The interest rate on these loans is much higher than conventional or home equity loans, and there is a large, one-time administration fee. Contractors will often sell these as an easy way to finance energy improvements.
Additionally, if as a homeowner, if you want to refinance your mortgage, the HERO loan would have to be paid off before the new loan could be funded. The reason for this is that the HERO loan is a tax lien against your home. Taxes have to be paid prior to a new loan being given. So, your new loan would have to include the payoff of the HERO loan, making your loan higher than you expected. Also, you would need to be qualified for that higher loan amount.
The HERO loan would have to be paid off with the proceeds from the sale. Normally, it cannot be transferred to the buyer. If you are not aware of that, it will come as an unpleasant surprise to find out you don’t have as much money from the sale as you planned. And, if you don’t have that much equity in your home, you might have to put money into the sale to make the numbers work.
Some sellers and real estate agents don’t realize that, usually, the HERO loan cannot be transferred to the buyer as part of their tax bill. So as a buyer, your purchase transaction might get cancelled if the seller does not have enough funds from the sale to pay off the HERO loan. One of my clients just had such a situation occur after they had spent money on inspections and an appraisal. Be sure to have your real estate agent check on this prior to making an offer.
