VA Cash-Out vs FHA Cash-Out on a Solar Lien in a High-Cost State

The Quick Read: It depends mostly on who you are and what kind of solar debt sits on the home. A VA cash-out generally fits a borrower with VA entitlement who wants to use the most equity. An FHA cash-out fits a borrower without VA eligibility who still has a long enough ownership and occupancy history. In both cases the solar debt has to be identified and then paid off, released or subordinated under lender and title requirements, and the payoff comes out of the cash you receive.

Key takeaways:

• FHA cash-out tops out at 80% of the home’s adjusted value, so a larger solar payoff directly shrinks your net cash.
• VA cash-out can reach higher leverage, but it requires eligibility, a net tangible benefit and a lender who will underwrite the file.
• A PACE assessment (repaid through the property tax bill) is the one solar structure HUD addresses by name for FHA.
• A VA cash-out can refinance an existing FHA loan into a VA loan.

Side-by-Side

Every figure here is subject to lender guidelines and full file review. None of it is a commitment to lend.

First, What Counts as a “Solar Lien”?

“Solar lien” is a loose phrase, and the program treatment depends on which structure you actually have. The federal consumer-finance regulator’s solar financing research describes loans arranged at the point of sale by installers and lenders working together. That is a different product from a PACE assessment, which is repaid through the property tax bill.

In practice, homeowners usually have one of these:

• A PACE assessment. It rides on the tax bill and can sit ahead of the mortgage in a default.
• A solar loan with a recorded or equipment-level filing. The installer’s lender may have a claim on the panels, the property or both.
• A lease or power purchase agreement. You don’t own the panels, which affects what an appraisal can credit.

Here’s the honest gap: HUD and the federal consumer-finance regulator speak directly about PACE, but neither HUD nor VA sets a program rule for an ordinary solar loan or a filing on the panels. So the practical standard is the one lenders and title companies apply: find the instrument, get a payoff or release path, and clear it before or at closing. Anyone who tells you “HUD says X about all solar liens” is stretching the record.

When VA Cash-Out Is the Better Fit

VA is usually the stronger tool when the borrower is eligible and the solar payoff is large relative to the equity. VA’s cash-out page says the loan runs through a private lender and can either take cash from equity or refinance a non-VA loan into a VA loan. That refinance option matters: an existing FHA loan can be refinanced into VA.

Three things tend to favor VA:

• Leverage. Because FHA caps cash-out at 80%, VA can leave more room after a solar payoff in a high-cost state, where balances and solar systems are both bigger.
• No ongoing mortgage insurance. FHA carries an upfront premium plus an annual one. VA swaps that for a one-time funding fee. Which costs less over your holding period depends on your loan size and how long you keep the loan.
• Loan size. A VA borrower with full entitlement isn’t held to a VA-imposed loan limit. Lenders and the appraisal still decide how much you can borrow, and county limits matter only for partial entitlement. Confirm the specifics on va.gov or with a loan officer. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

The paperwork is heavier, though. VA Circular 26-19-05 splits refinances into IRRRL, Type I and Type II cash-outs and requires every cash-out to pass a net tangible benefit test. The lender must also provide a comparison disclosure early in the process and a final one at or before closing. A VA-to-VA refinance adds seasoning and fee-recoupment requirements.

The flip point: if you lack entitlement, or the loan would be a VA-to-VA refinance that fails the benefit test, the VA advantage disappears.

When FHA Cash-Out Is the Better Fit

FHA is the better fit when you don’t have VA eligibility, or when your credit and income profile suits FHA’s more forgiving structure. Lendmire places FHA loans through wholesale programs that start at a 580 decision score, and ratios run from a 31/43 base to 40/50 with documented compensating factors.

The constraint is the cap. HUD Mortgagee Letter 2019-11 cut the maximum LTV and CLTV on cash-out refinances to 80% of adjusted value. HUD’s news release explains that this aligns FHA with the cash-out maximum used by the government-sponsored enterprises. Practically, you keep at least 20% equity after closing, and the solar payoff comes out of the same 80% bucket.

Occupancy matters too. The FHA cash-out needs a home owned and occupied for 12 months before the case number. Confirm the Handbook 4000.1 section that governs this with your loan officer.

Then there’s PACE. HUD Mortgagee Letter 2017-18 says properties encumbered with PACE obligations are no longer eligible for FHA-insured forward mortgages, and it treats PACE payoff as a mandatory obligation. For an FHA borrower, a PACE balance has to be paid off at closing rather than left on the property. Paying it off also removes that line from the tax bill. The CFPB’s PACE research found that PACE borrowers’ property taxes rose substantially, per its final rule release.

Don’t stretch that into “any solar lien blocks FHA.” HUD’s published bar covers PACE. For other solar debt, the lender’s and title company’s payoff or release requirements decide.

How the Solar Payoff Changes the Math

The payoff of the solar balance comes out of the new loan amount, so it reduces the cash you receive. That is true under both programs. Under VA, the lender and the appraisal set the ceiling, and VA won’t back a cash-out where the loan exceeds reasonable value. Verify the exact language in the circular.

Picture a home in a high-cost state with a solid equity cushion and a financed solar system. Run the same inputs through both programs and the FHA ceiling is usually the first thing to bind. A VA loan may leave more net cash after the solar payoff, though that depends on the funding fee, the appraisal and the lender’s overlays. A borrower who needs only a modest amount of cash may find the two programs land close together, and then the insurance-versus-funding-fee comparison and eligibility drive the choice.

Two things to keep in mind on appraisal:

• FHA applies its cap to adjusted value, which comes from the appraisal.
• Panels don’t automatically raise value. Owned panels may be credited depending on the appraiser’s analysis, while leased panels aren’t yours and generally can’t be.

If the solar payoff is large compared with the appraised value, the cash-out may shrink to nothing. In that case, keeping the solar loan or using a second lien may be the better move.

What About High-Cost-State Loan Limits?

High-cost states push loan size, and FHA limits are set by county and change every year. County loan limits apply, so check yours on HUD’s mortgage limits page rather than assuming. The FHA ceiling follows the high-cost conforming limit, which is 150 percent of the baseline set each year by the FHFA. The FHFA’s announcement of the 2026 conforming loan limits explains how that ceiling is derived.

Here’s the tradeoff. In an expensive county, a large existing balance plus a solar payoff can bump against the FHA county limit before the 80% cap even matters. VA, for a borrower with full entitlement, doesn’t carry that VA-imposed limit. That’s a real structural edge, with the caveat that lenders still size the loan on the appraisal and your income.

A Practical Checklist Before You Choose

1. Identify the instrument. PACE, a solar loan with a filing, or a lease or PPA.

2. Ask for a payoff or release path. Get payoff information from the solar company early, and ask the title company what it needs to clear the lien.

3. Check eligibility. VA needs a Certificate of Eligibility. FHA needs 12 months of ownership and occupancy.

4. Compare the cost structures. FHA’s upfront and annual premiums versus VA’s funding fee, over how long you’ll keep the loan.

5. Look at alternatives. A VA IRRRL or an FHA Streamline refinances your existing loan but doesn’t give you cash. A HELOC or second lien may suit a borrower who has a low-cost first mortgage worth keeping.

If you’re a veteran refinancing out of an FHA loan, the VA route may also remove the annual FHA premium. Whether that’s a net saving depends on the funding fee and the net tangible benefit test.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

The Balanced Verdict

If you’re VA-eligible and the solar payoff plus your cash goal pushes past FHA’s 80% ceiling, VA is typically the stronger structure, with more paperwork and a benefit test to pass. If you’re not VA-eligible, FHA is the practical route, provided you’ve owned and lived in the home long enough and any PACE balance gets cleared at closing. If your existing first mortgage is worth keeping, neither may be right.

Genuinely a toss-up for modest cash-out amounts. The deciding variables are eligibility, how long you’ll hold the loan, and what kind of solar debt is on the home. Verify those with a loan officer before committing.

If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Reach the team at 828-256-2183 or request a quote.

Key Terms Defined

PACE: A clean-energy assessment repaid through the property tax bill, which can sit ahead of the mortgage in a default.

Net tangible benefit: A VA test that a cash-out refinance must pass by delivering a real, measurable advantage to the borrower.

Adjusted value: The appraisal-based value FHA uses to apply its loan-to-value cap.

Subordination: An agreement by a lienholder to rank behind the new mortgage instead of being paid off.

Funding fee: The one-time VA charge, paid in place of ongoing mortgage insurance.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB’s solar financing research

2. VA Cash-Out Refinance Loan page

3. VA Circular 26-19-05

4. HUD Mortgagee Letter 2019-11

5. HUD News Release 19-114

6. HUD Mortgagee Letter 2017-18

7. CFPB PACE final rule release

8. HUD’s mortgage limits page

9. FHFA’s announcement of the 2026 conforming loan limits