Understanding HELOC and PACE loans for solar

While solar has a ton of benefits, is often cashflow positive on Day 1, and can pay for itself in just a few years, the initial cost of a system can feel like a lot. It’s no wonder, then, that many homeowners choose to finance their solar system rather than pay out of pocket. 

As of 2025, the average residential solar system — for these purposes, 15 to 20 solar panels — costs between $16,600-$20,500. And with the 30% Investment Tax Credit ending thanks to the passage of the One Big Beautiful Bill (OBBB) (again, we didn’t name it), buying a system outright, i.e. paying cash, isn’t an option for many homeowners. 

That doesn’t mean that solar isn’t an option, though. There are many ways to finance a solar system, including solar loans, leases, power-purchase agreements, and more. We’ve reviewed leases and PPAs in a previous article, so today we’ll take a look at home equity lines of credit (HELOC) and Property Assessed Clean Energy (PACE) loans — two of the most common types of solar panel loans, as well as the coolest acronyms. 

This guide will help you make an informed decision about your solar financing options. We’ll break down the key differences between a HELOC and a PACE loan, explain how the application process works for each, and help you understand how to use them to fund your solar project with confidence. 

In this article

• What is a HELOC?
• What is a PACE loan? 
• How HELOC and PACE loans work for solar
• Pros and cons of HELOC for solar
• Pros and cons of PACE loans for solar
• Comparing HELOC and PACE loans
• Choosing the right home solar financing
• Frequently asked questions

What is a HELOC?

A HELOC is a type of home equity loan that allows homeowners to borrow against the equity in their home, using the property as collateral. Home equity is the difference between your home’s current market value and the remaining balance on your mortgage. 

For example, if you owe $300,000 on your mortgage, and your home value is $700,000 at the time of valuation, you have $400,000 in equity (nice work!). 

With a HELOC, a lender approves you for a credit limit based on your available equity. You can then borrow from that line of credit as needed — similar to how a credit card works, but with a lower interest rate. Once the agreements are signed, you’re free to use the funds for your solar installation or other home improvement projects.

What is a PACE loan?

A PACE loan is a financing option offered through certain states, local governments, or third-party providers. It allows homeowners to finance eligible home improvements, like solar panel installations, without paying up front. (Note: Eligible home improvements vary by state.)

Instead, the cost is added to the homeowner’s property tax bill and repaid over time through a special assessment. Because a PACE loan is treated as a property tax lien, failure to repay it can result in foreclosure. 

As of this writing, the PACE program is available in 32 states and Washington, D.C.

Learn more about your eligibility by state. 

How HELOC and PACE loans work for solar

If you’re deciding between a HELOC or a PACE loan to finance your renewable energy upgrade, start by understanding how they differ. Consider their eligibility requirements, application processes, and approved timelines. 

HELOC 

Before applying for a HELOC, check your credit score. Most lenders offer competitive interest rates to borrowers with scores in the mid-600s or higher. If your credit score isn’t yet high enough to apply for the terms you’d like, take time to improve it. Review your credit report to dispute any false information, unsubstantiated derogatory marks, and verify that all debt is truly yours. 

If your credit score is high enough to apply, determine approximately how much you want to borrow to cover your solar project. Begin shopping for lenders that align with your preferred terms. You can do this online, with your original mortgage company, or even with local banks.

Once you’ve narrowed down your list, connect with your lender of choice and start the application process. Each one has its own application, requirements, and internal process to determine how much equity you have in your home to borrow. 

Submit your application, verify submission, and wait for lender approval. If both you and your lender agree to the offered terms, you’ll receive a closing date from your lender. On this date, you’ll sign the loan documents and transfer funds. 

While timelines vary greatly based on individual lenders and applications, most HELOC processes take between 1-2 months to complete, from application to closing date, although many institutions offer much faster turnaround times. 

PACE loan  

Before applying for a PACE loan, determine if you live in a participating state and if your home project is eligible for your state’s PACE loan restrictions. You can find this information on their specific PACE loan informational page. You’ll also be able to view state-specific information about application processes and timelines. 

While the exact process varies by state, the typical application process starts with a quoted price estimate and a PACE loan application, which is filed either by the homeowner or a PACE-approved contractor. Once approved and executed, the installation work can begin. 

Like other elements of the PACE program, approval timelines vary by state. Some homeowners have had their applications approved the same day, while others have reported average timelines of 90 days or more. 

Consult your state’s PACE information page for more specific information. 

Pros and cons of HELOC for solar

Using a HELOC to finance your solar installation offers several benefits: 

• Flexible payment terms. HELOCs often offer more flexible terms than PACE loans, especially for homeowners with good credit. Borrowers with strong financial standing may qualify for better rates and repayment options. 
• Interest-only draw period. During the draw period, you may be able to make interest-only monthly payments, helping to reduce short-term costs while you pay down the principal at your own pace.

Potential cons of HELOCs include: 

• Reduces your home equity. Because a HELOC borrows against your home’s equity, it lowers the amount of equity available until the loan is paid off. 
• Impacts home sale. If you sell your home before repaying the HELOC, the outstanding balance must be paid at closing. While the home sale proceeds may cover this, in some cases, it may not be enough. 

Pros and cons of PACE loans for solar

PACE loans offer a different structure and are often used by homeowners who prefer not to use their home equity or don’t qualify for a traditional loan. 

Here are the pros of PACE loans:

• No upfront payment required. PACE loans don’t require out-of-pocket costs to get started, making them a great option for homeowners who lack upfront capital but still want to install solar. 
• Long-term repayment options. PACE loans often come with extended repayment terms from 20-25 years, allowing for lower annual payments. Unlike HELOCs, approval and repayment terms aren’t tied to your credit score, which can make PACE loans more accessible. 

Before you determine if you’re eligible for a PACE loan, consider the potential downsides: 

• Property lien may affect refinancing or resale. PACE loans are repaid through a property tax assessment, which places a lien on your home. This can complicate your ability to sell or refinance, as many lenders are hesitant to approve mortgages on homes with outstanding PACE liens. 
• Limited availability and restrictions. PACE programs aren’t available in all states, and eligibility rules vary. Some types of home improvements may not qualify, depending on your location and local program guidelines. 

Comparing HELOC and PACE loans

Trying to decide between a HELOC or a PACE loan for your solar panels? Here are the key differences to consider before choosing the best financing option for your needs.

Feature	HELOC (Home Equity Line of Credit)	PACE Financing
What it is	A line of credit based on your home’s equity. Lenders may offer variable terms based on your credit score and general finances.	A property tax lien tied to the property, which can only be used for eligible improvements. Must be repaid by the homeowner — or the incoming homeowner if the home is sold — and can typically be done alongside the property tax payments.
Eligibility requirements	Vary, and are typically dependent on your home’s current equity evaluation, your credit score, and your general financial standing.	More restricted than HELOC eligibility, and it often depends on whether the property is in a PACE jurisdiction and whether the homeowner plans to use PACE funds for an eligible home improvement project.
Total cost of financing	Homeowners may be eligible for lower interest rates depending on their credit scores, histories, and general financial standing.	Homeowners may end up paying more with a PACE loan than with a HELOC, due to the prolonged repayment period and variable fees and interest rates.
Impact on credit & home equity	HELOCs reduce home equity until they are repaid. Like other forms of loans, all balances and payment statuses are reported to the credit bureaus.	PACE loans attach a lien to the property. This can complicate home sales later on and HELOC use in the future, since the home’s equity will be reduced and the lien will remain on the property upon transfer to the new homeowner. There may also be difficulties if the homeowner chooses to refinance, depending on local state restrictions.

Choosing the right home solar financing

Selecting the right repayment option is crucial for a successful installation and your long-term financial well-being:

• HELOCs are often the best choice for homeowners with strong credit. 
• PACE loans work well for those living in eligible areas who plan to stay in their home long term. 

Need help? Aurora can help you find the most competitive and accurate financing rates and quotes for your upcoming solar project — all with no obligation. 

Frequently asked questions

Can I use a HELOC and a PACE loan together for the same project?

Yes, you can use a HELOC and a PACE loan to finance the same home improvement project. However, combining these financing options can create complications down the road. 

PACE loans take lien priority, as they are property tax-based rather than a true “line of credit,” like a HELOC. Additionally, PACE loans have use restrictions on them, unlike a HELOC, meaning they can only be used for eligible home upgrades (depending on the state).

When you combine the two, dual financing may be harder to manage and not accepted by all lenders or buyers. 

How does a PACE loan affect selling my home?

PACE loans can complicate the sale of your home. Once PACE loans are accepted, a lien is placed on the property that remains until it’s paid back in full. 

So, if you decide to relocate, you’ll have to find a home buyer who’s willing to continue the payments, as the lien follows the property — not the individual. Lenders may not agree to make a mortgage for the buyer to proceed with the sale if there is an unresolved PACE loan in place. 

Additionally, you may face similar issues if you try to refinance the home. Certain limitations, challenges, and exceptions may vary by state. 

Are interest payments on a HELOC tax-deductible?

In some cases, yes. According to the IRS, interest payments made on a HELOC that was used to substantially improve, buy, or build your home may be tax-deductible, as they could be considered home acquisition debt. This is not the case if you use HELOC funds for personal living expenses or personal debt repayment. Always consult with a tax professional for individualized advice. 

What credit score is typically required for a HELOC?

Exact credit scores required for a HELOC vary by lender, but most banks favor credit scores of at least 620 or higher. They often award better repayment terms to those with a higher credit score and a longer credit history. 

Additional factors lenders consider when determining a HELOC decision include your financial standing, your debt-to-income ratio (DTI), and your income history.