The term HERO stands for Home Energy Renovation Opportunity and is a government based program providing financing for energy efficient, water efficient, and renewable energy products to homes and businesses in approved communities within California and Missouri. Basically, it is a home loan that you can get to install energy efficient materials in your home. That all sounds great but there are downsides.
Also known as the PACE program (property assessed clean energy financing), the HERO loan only sounds good in theory. There’ve been so many drawbacks to it and disadvantages, that homeowners are now finding themselves stuck with a loan they may not be able to get rid of. The idea of getting home improvements done now and paying for them later does seem appealing, but the interest rates, fees, and set up can be horrendous and it could hike up your tax base, adding hundreds to your mortgage each month.
Read More: Was the HERO Loan ever a Good Idea?
Plus, what a lot of homeowners don’t realize is that it takes the first precedence over any other liens against the house. This means if you plan on selling your house, lenders will not lend on properties where they don’t have the first position. This also makes a second mortgage almost impossible. If you have second mortgages first, they cannot close without the HERO loan being paid off. So, while it might sound good on the front-end, the reality is it takes priority, and you may be stuck with it… Until now.
There are ways to get out of the HERO loan. Not all mortgage advisers and officers can handle this type of situation but I, on the other hand, specialize in this. Although this type of loan is transferable as far as the title, most lenders will still not loan on a property they don’t have the first position in. So the HERO loan would have to be paid off prior to the close of escrow. This creates a difficulty in refinancing and selling.
Typically the only way to get rid of this type of loan is through the selling of the property or a refinance, but like we said before, it needs to be paid off first. With creative financing in the way that I set up my loans for my clients, we can transfer a lot of the money owed into a new loan. There are ways out of it without having to come up with a huge chunk of money.
The most important thing is to call a lender or mortgage adviser that is fully aware of the program and has experience in helping homeowners out of the program through the refinancing or selling. Let’s get you out of this burden that adds hundreds to your property tax each year. Give me a call today.
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