The Quick Read: the lender first sorts your solar into a type (owned, loan, lease or power purchase agreement, or PACE) and then asks one question: does it come off the title, or does it get paid out of your proceeds? Most types can be cleared at closing. PACE must be paid off, and every payoff dollar reduces the cash you walk away with. A high-cost state does not change those rules. It makes the balances larger and the title search more important.
Key Takeaways
- “Solar lien” covers at least five different arrangements, and each one reads differently in an FHA file.
- A solar loan or lease payment generally counts in your monthly obligations when the lender qualifies you.
- The FHA cash-out refinance reaches 80% of the home’s value, so a solar payoff comes straight out of net cash.
- Expensive states do not have special FHA solar rules. They have bigger numbers and more county-level recording variation.
- If you need no cash, a rate-and-term refinance may be the better tool.
What Is a “Solar Lien,” Exactly?
A solar lien is whatever claim the solar provider or lender holds because of the system on your roof. It might sit on the equipment only, on your land records, or on your property tax bill. Those are very different things to a lender.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
The common structures:
- Owned outright or paid off. No claim exists. Nothing to clear.
- Solar loan with a UCC-1 filing on the equipment. A UCC-1 is a state-level notice that the lender has a claim on personal property, meaning the panels.
- Fixture filing or recorded deed of trust. This version is recorded in county land records, so it attaches to the real estate itself. Title will find it.
- Lease or power purchase agreement (PPA). You rent the system or buy its output. The provider usually files a UCC against its own equipment.
- PACE. An assessment collected through your property tax bill, not a loan from a bank in the usual sense.
These structures are not one thing, and the lender’s reaction depends on which one you have.
The Misconception Worth Correcting First
Many borrowers hear that any solar lien kills an FHA loan. That is wrong. HUD’s explicit bar is aimed at PACE, not at solar generally. A solar loan or UCC filing does not by itself disqualify a home from FHA insurance. Non-PACE solar gets handled through ordinary title and underwriting practice: clear the claim or get it subordinated, and count the payment in your ratios.
PACE is the exception. HUD Mortgagee Letter 2017-18 says properties encumbered with PACE obligations are not eligible for FHA-insured forward mortgages. HUD’s stated reason, in its news release, is that these obligations can be placed ahead of the mortgage if the borrower defaults. The letter has since been folded into HUD’s Handbook 4000.1.
Here is the part people miss. A PACE balance is existing debt, and trade summaries of the letter say a refinance can pay it off. That includes a cash-out refinance. The primary text is in the letter and the Handbook, so read those, not a summary, before relying on it.
How the Loan Is Underwritten, Step by Step
What follows is how a solar lien moves through a file arranged with wholesale lenders.
1. Identify the structure at application. Tell your loan officer about the solar early. Say whether you own it, finance it, lease it, or pay it through taxes. Appraisal guidance points out that sorting out ownership structure and flagging UCC liens is the lender’s job, not the appraiser’s, according to McKissock’s appraisal FAQ.
2. Pull the documents. Expect to provide the solar contract or lease, a payoff statement, copies of any UCC filings, and your property tax bill. The tax bill shows whether a PACE assessment sits on it.
3. Order title. The search shows what is recorded against the home. The title commitment either matches what you disclosed or it does not. A mismatch can stall a solar file, so disclosing everything early helps.
4. Appraisal. If PACE exists, HUD’s guidance in the letter’s attachment says the lender must tell the appraiser. Owned panels may add value where the local market supports it. Leased and PPA panels generally add none. FHA guidance is generally understood to follow the conventional approach on this point.
5. Clear the claim. The usual paths are a payoff from closing proceeds followed by a UCC-3 termination, a subordination behind the new first mortgage, or a buyout or consent from a lease or PPA provider. PACE comes out of the loan proceeds because the new FHA loan cannot close over it.
6. Qualify the payment. The lender counts an ongoing solar loan or lease payment as a monthly obligation. Across FHA files, the base ratio pair is 31/43 (housing and total debt), and documented compensating factors can stretch to 40/50 at the top tier. The automated finding governs most files. Paying off a solar loan can lower your total ratio. Rolling that payoff into a bigger first mortgage changes the mortgage payment and the mortgage insurance base. Subject to lender guidelines and full file review.
7. Do the cash-out math. More on that below.
How the Lender Reads Each Structure
| Solar structure | Where it sits | Typical handling |
|---|---|---|
| Owned or paid off | No filing | Nothing to clear |
| Loan, UCC on equipment | State UCC record | Pay off or subordinate |
| Fixture filing or deed of trust | County land records | Pay off or subordinate |
| Lease or PPA | Provider’s UCC filing | Provider consent or buyout |
| PACE | Property tax bill | Paid off from proceeds |
This table reflects general file practice, not a HUD rule for every row. Only the PACE row rests on a specific HUD bar. Each file still gets reviewed on its own facts.
The Cash-Out Math, Without the Dollar Signs
The FHA cash-out refinance reaches 80% of the home’s value, and the home must have been owned and occupied for 12 months before the case number. The program is for owner-occupied principal residences only. Lender guidelines can add conditions, and nothing here is a commitment to lend.
Start with the cap. Take the appraised value and multiply by 80%. Then subtract:
- Your existing first mortgage
- The solar or PACE payoff
- Closing costs and any other required payoffs
What remains is your cash.
Consider a hypothetical homeowner. The home appraises at 100% of its value for this illustration. The new loan can reach 80%. The current first mortgage is 55% of value, and the solar payoff is 8% of value. Closing costs and other required items take roughly 3%. That leaves about 14% of the home’s value in cash. If the solar payoff were zero, the same borrower would see about 22%. These percentages are modeled assumptions, not market data. The payoff cut the cash by more than a third.
The upfront mortgage insurance premium of 1.75% of the base loan can be financed, and the annual premium depends on term, amount and loan-to-value. Both belong in your own version of this math.
Why a High-Cost State Changes the Numbers, Not the Rules
There is no HUD or CFPB source that treats solar liens differently in expensive states. The rules are national. High-cost areas matter in three practical ways:
- Bigger balances. Larger homes and larger loans mean a solar payoff can be a meaningful slice of available equity. A big ceiling does not shrink the payoff. The same solar dollars come out either way.
- County loan limits. FHA limits are set by county and change every year. In pricier counties, a home’s value may press against the limit. County loan limits apply, so check yours with a loan officer.
- County recording practices. Fixture filings live in county land records, and counties differ on how filings are indexed. A state-level UCC search and a county title search can disagree. Asking your solar provider for copies of everything filed helps title reconcile them.
Where the General Rule Breaks
PACE is not a solar loan. It is a tax assessment, and it stays with the property if the home is sold. The CFPB explains in its PACE overview that you repay it through your property tax bill and, as with any tax lien, you may lose your home if you do not pay. The CFPB also says the government does not insure or fund PACE loans.
PACE changes your tax bill. According to the CFPB’s final rule announcement, PACE borrowers saw property taxes rise by about 88 percent on average, and PACE costs roughly five percentage points more than first mortgages. Those are study findings, not a promise for every borrower. The same rule adds ability-to-repay protections for residential PACE loans. Confirm its current status before relying on it.
A lease is not a lien in the ordinary sense, but its filing can still cloud title. Conventional guidelines accept a UCC filing that covers only the equipment. Fannie Mae’s Selling Guide requires a fixture filing senior to the mortgage to be subordinated. Freddie Mac’s Guide asks that a UCC-1 creating a lien on the real estate be subordinated or released. Those are conventional rules, not proof of FHA treatment. They are useful as a contrast.
A new system is a different path. FHA has its own financing route for adding new solar or wind systems to a base loan, at purchase or refinance. It is for buying the system, not for cash back. Any percentage limit on that route is set in HUD’s Handbook, so check its current language before planning around it.
The solar loan itself may be pricey. The CFPB’s solar financing issue spotlight describes markups and fees that raise solar loan costs, exaggerated savings claims, and UCC liens on the panels. Paying that balance off through a cash-out does not erase what it cost to carry.
Existing FHA borrowers can add PACE later. If you already hold an FHA loan, a later PACE assessment can complicate a future refinance.
Second homes and rentals. Standard FHA cash-out is for the home you live in. Occupancy decides the program.
When Cash-Out Is the Wrong Tool
Cash-out is a good fit when you need real cash after the payoff and can live with a larger balance. Look elsewhere in these situations:
- You need no cash. If your goal is to clear PACE or a solar loan and reset the mortgage, an FHA rate-and-term refinance reaches 97.75% on a principal residence occupied for the previous twelve months. That is a much higher cap than 80%. Trade summaries say rate-and-term can pay off PACE too.
- You already hold an FHA loan. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. The premium continues. Whether it can handle your solar payoff depends on the file.
- You are adding new solar. The solar add-on route may fit better than cash-out.
- The payoff would eat most of your cash. If the solar balance leaves little cash, ask whether the refinance is worth its costs.
A practical aside: FHA cash-out also has limits unrelated to solar, such as the 80% cap and ratio tests.
Borrower Checklist and Sequence
1. Tell your loan officer which solar structure you have, before the application is finished.
2. Gather the solar contract or lease, the payoff or subordination request, and copies of any filings.
3. Pull your property tax bill and look for assessment lines.
4. Ask the solar provider whether it will pay off, subordinate, or consent, and in what form.
5. Review title as soon as it arrives and compare it to what you disclosed.
6. Run your own version of the cash-out math with the payoff included.
Finding a fixture filing or a PACE line late can stall a file while payoff or subordination letters are chased. Disclosing early keeps it out of that spot.
Key Terms Defined
UCC-1: A notice filed with the state that a lender or provider has a claim on personal property, such as solar equipment.
Fixture filing: A filing recorded in county land records that ties equipment to the real estate.
UCC-3: The form that terminates a UCC filing once the debt is paid.
Subordination: An agreement by a creditor to rank behind the new first mortgage.
PACE: A financing arrangement repaid as a special assessment collected with property taxes.
Frequently Asked Questions
Can I get an FHA cash-out refinance if my panels are leased?
Often, yes, depending on how the lease is filed. A lease or PPA generally carries a UCC filing on the provider’s own equipment. Lenders may ask for provider consent, a buyout, or a subordination, and the panels add no value to the appraisal. Each file is reviewed on its facts, subject to lender guidelines.
Will PACE stop my FHA loan?
It stops the loan unless the PACE obligation is paid off. HUD bars FHA forward mortgages on properties encumbered with PACE, but the new loan can pay it off. On a cash-out, the payoff comes from proceeds and shrinks your cash. Read HUD’s letter and Handbook directly, not only summaries.
Does a UCC-1 filing count as a real lien?
It is a real claim on the equipment, and title still has to resolve it. Some solar contracts describe a fixture filing as notice only. A filing recorded in county records attaches to the real estate itself, so lenders tend to want it paid off or subordinated.
Can I roll the solar payoff into the new loan?
Yes, in the sense that the payoff comes out of the new loan’s proceeds. The 80% cap then limits how much is left for you. Paying off the debt can lower your total monthly obligations, but a bigger first mortgage changes your mortgage payment and mortgage insurance base.
Do high-cost states have different solar lien rules for FHA?
No federal source I reviewed treats them differently. The differences are practical: bigger payoffs against bigger loans, county loan limits, and county-level recording habits. Ask a loan officer how your county’s limit and title practices apply.
Next Step
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2017-18 (PACE)
4. HUD Mortgagee Letter 2017-18 attachment
6. CFPB PACE final rule press release
8. Guide
9. CFPB Solar Financing Issue Spotlight
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get an FHA Cash-Out Refinance? · Can a High-DTI Borrower Free Up Payment With an FHA Cash-Out? · Does an FHA Cash-Out Take Longer Than a Conventional One?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.