The Quick Read: A solar lien does not block a conventional cash-out refinance, but the way the solar system is structured decides how the file is handled. A leased or financed system with a simple equipment filing is usually a title item to clear. A PACE assessment is different and usually has to be paid off. Being a first-time borrower adds no special rule to a cash-out, though the ownership and seasoning clocks matter more for a recent buyer.
What a “solar lien” actually is
“Solar lien” is a loose label. It can mean at least four different things, and the file treats each one differently.
Fannie Mae’s selling guide sorts solar systems by ownership and debt structure: owned, leased, separately financed, or under a power purchase agreement. The guide says Fannie Mae will purchase loans on properties with solar panels. So the panels themselves are not the problem. The structure of the debt attached to them is the question.
Here is how the common structures sort out on a conventional cash-out file.
| Solar structure | What is on title | Typical effect on the file |
|---|---|---|
| Owned outright | Nothing | Standard rules apply |
| Financed, equipment filing only | Equipment-only filing | Usually a title item to clear |
| Financed, filing against the real estate | Lien on the property | Payoff or subordination needed |
| Lease or PPA | Equipment filing | Panels excluded from value |
| PACE | Tax assessment | Usually paid off at closing |
The lender has to work out which row you are in. Fannie Mae makes that the lender’s job, because the new mortgage must stay in first-lien position.
First-time borrower: what the label does and doesn’t change
Being a first-time borrower changes nothing in the cash-out rules. First-time status matters on the purchase side. Across the wholesale programs placed through Lendmire, a first-time buyer on a one-unit principal residence can reach 97% leverage on a purchase, and 95% is the standard figure. That is a purchase benefit. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Cash-out is a separate lane. Conventional cash-out on a one-unit principal residence tops out at 80% LTV. Two- to four-unit principal residences, second homes and investment properties are capped at 75%. A borrower who has owned a home for a year gets the same cap as a borrower who has owned for twenty. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
What does matter for a recent buyer is the clock. Two seasoning rules apply:
- The first mortgage being paid off must be at least 12 months old, measured note date to note date.
- A borrower must have been on title for 6 months.
For a primary residence, all borrowers must occupy the home. Delayed financing, inheritance and legal-award exceptions exist. Don’t assume you qualify for one without the documents to show it.
This is where a first-time borrower with solar tends to get caught. Panels were often financed within months of the purchase. The home may be under a year old with a first mortgage under 12 months. The solar debt is not the obstacle. The clock is. If the first mortgage is too young, the file waits, whatever the solar paperwork says.
How underwriting reads the solar debt
Underwriting asks three questions. Where does the new mortgage sit in lien order? Does the solar payment count against income? Does the solar debt change the equity picture?
Lien position. The new mortgage must be first. An equipment-only filing doesn’t claim the real estate, so it is generally a minor title item. A filing recorded against the real estate is a lien on the property itself and has to be dealt with.
Debt-to-income. A solar loan is a debt, so its payment generally counts in the ratios. Lease and PPA payments can be treated differently depending on contract terms. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans run to 36% or 45%, with the reserve and score factors of the Eligibility Matrix. Subject to lender guidelines, a large solar payment can be the difference between an automated approval finding and a manual file.
Equity. If the solar debt is secured against the home, it can count toward combined leverage. If it is secured only against equipment, the treatment can differ. The lender sorts this out from the documents, not from your description.
The wholesale conventional programs start at a 620 decision score. Mortgage insurance isn’t part of a cash-out at 80% LTV, since insurance applies above 80%. Fannie Mae’s Eligibility Matrix governs leverage, credit score and reserves by transaction and occupancy. Reserves come into play on automated cash-outs with higher ratios. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Does paying off solar change the loan type?
Sometimes. Fannie Mae draws a line between a limited cash-out and a cash-out. A limited cash-out pays off only the first mortgage, closing costs and a purchase-money second lien, with small cash back. A cash-out lets a borrower pay off any subordinate lien and take equity for any purpose.
The solar payoff falls on one side or the other. Fannie Mae’s cash-out guide names an exception: a PACE loan or other debt used solely for energy improvements can be paid off within a limited cash-out. Other debt that wasn’t used to buy the home generally pushes the file into cash-out.
Fannie Mae also prohibits structures that get around its cash-out policies and pricing. A lender can’t relabel a cash-out as a limited cash-out to get better terms. Ask the loan officer how your specific solar loan is classified, and get the answer in writing.
Cash-out transactions also carry loan-level price adjustments that limited cash-outs do not. Lendmire doesn’t quote those here. They show up on your Loan Estimate.
PACE: the version that behaves differently
PACE is the structure to identify first. It is repaid through the property tax bill, and it typically has first-lien priority over earlier mortgages. Fannie Mae’s PACE policy notes the standard security instruments bar loans that sit senior to the mortgage.
The practical result: panels and energy items financed with PACE are generally not eligible unless the PACE loan is paid off before or at closing. A borrower with enough equity is expected to pay it off as a condition of the new loan. A narrow lender-side exception exists for a limited cash-out where the PACE stays. It applies when the borrower can’t qualify for enough proceeds to pay it off. It is not something to plan around.
PACE also changes the household budget. The CFPB’s research, in its final PACE rule announcement, found PACE loans meaningfully raised borrowers’ property taxes. It also found PACE borrowers were more likely to fall behind on their first mortgage. A cash-out that retires PACE may be worth comparing against keeping it. That is a decision to make with the numbers in front of you.
Leased and PPA panels
With a lease or PPA, the solar company owns the panels. They are personal property, not part of the house. Under Fannie Mae’s appraisal rules, they must not be included in the appraised value. A borrower who thinks the system adds to the home’s value will be disappointed on a leased system. The appraisal won’t give credit for it, and the leverage math follows the appraisal.
The title issue on a lease is the equipment filing. It is usually a notice that the solar company owns the equipment. It is not a claim on the house. But title companies find it late, often at the title search, and it can hold up a file until the lender decides how to treat it. Notify the solar company early. Sometimes the filing has to be temporarily released or acknowledged.
Walking through a scenario
Picture a borrower who bought a one-unit primary residence with a first-time buyer program and financed solar through a separate loan a few months later. They now want to tap equity to pay off the solar loan and fund a repair.
Run the checks in order. First, is the first mortgage at least 12 months old, note date to note date? If not, cash-out isn’t available yet. Second, has the borrower been on title for 6 months? Third, is the solar loan secured against equipment only, or against the real estate? Fourth, does the new loan stay at or under 80% LTV once the solar payoff and any other payoffs come out of the proceeds? Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The answers to those four questions matter more than the word “solar.” If the system is financed with equipment-only security, the payoff is a normal payoff on a cash-out. If it is secured against the real estate, the lien has to be released at closing. If it’s PACE, it’s paid at closing.
Mortgage insurance doesn’t enter this picture at 80% LTV. In Texas, a cash-out on the homestead is capped by the state constitution. These are program figures, subject to lender guidelines and full file review.
Where the general rule breaks
- PACE. The one structure with automatic priority over the mortgage. Different eligibility path from every other solar debt.
- Young first mortgage. A borrower on a 97% first-time purchase may be well short of the 12-month mark. The solar loan doesn’t matter until the clock runs.
- Unresponsive solar company. If the company won’t release or acknowledge the filing, the title stays unclear and the file stalls.
- Recorded solar mortgage with no subordination. A lien on the real estate that the holder won’t subordinate has to be paid off.
- Manufactured housing. Cash-out leverage caps run lower, and first-time-buyer status gives no benefit. The lender confirms the limits.
- Second homes and investment property. Occupancy decides the leverage: 75% for these versus 80% on a one-unit primary residence.
Key Terms Defined
UCC-1 filing: A public notice that a creditor claims an interest in specific equipment, such as solar panels.
Subordination: An agreement by a lienholder to rank behind the new mortgage.
PACE: A clean-energy loan repaid through the property tax bill that typically ranks ahead of the mortgage.
Seasoning: The minimum time you have held title or the existing loan has been in place before a cash-out is allowed.
Limited cash-out: A refinance that pays off the first mortgage and closing costs with only incidental cash back.
Delayed financing: An exception that lets a recent cash buyer take a cash-out loan soon after purchase.
What to do, in order
1. Pull the paperwork. Gather the solar contract, any financing agreement and your title report. Know whether you own, lease, finance or have PACE.
2. Check the clocks. Confirm the first-mortgage age and the months on title against the 12-month and 6-month rules.
3. Call the solar company early. Ask what is recorded, and whether a payoff letter or acknowledgment is available.
4. Ask for the classification. Have the loan officer tell you whether the solar payoff makes this a cash-out or a limited cash-out.
5. Confirm the release after closing. Verify the lien release or termination was recorded.
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. The cash-out refinance programs page lays out the options. For a related look at borrowers with younger loans, see Lendmire’s piece Does a Second Appraisal Help a First-Time Conventional Cash-Out Borrower?.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Can I do a conventional cash-out if I still owe on my solar system?
Yes, in most structures. Fannie Mae will purchase loans on properties with solar panels. What changes is how the debt is handled: paid off at closing, cleared as a title item, or, for PACE, retired as a condition of the loan. Subject to lender guidelines and full file review.
Does first-time buyer status help on a cash-out?
No. The first-time buyer feature applies to purchase options with leverage up to 97%. A cash-out on a one-unit primary residence is capped at 80% LTV for every borrower. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Will leased solar panels raise my appraised value?
No. Leased and PPA panels are personal property under Fannie Mae’s appraisal rules and are excluded from the appraised value. Owned panels may be treated differently, based on the documentation.
Is the solar filing on my title a lien on my house?
It depends on what it claims. A filing covering only the equipment is generally a minor title item. A filing recorded against the real estate is a lien on the property. PACE is a tax assessment with priority over the mortgage.
What if I bought recently?
The first mortgage must be at least 12 months old, and a borrower must have been on title for 6 months, with listed exceptions such as delayed financing. Until those clocks run, the solar debt is a secondary concern.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see conventional loan programs.
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References
1. Fannie Mae Selling Guide B2-3-04, Special Property Eligibility Considerations
2. Fannie Mae Eligibility Matrix
3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. Fannie Mae Selling Guide B5-3.4-01, PACE Loans
5. CFPB final PACE rule press release
6. Fannie Mae Selling Guide B4-1.3-05 Improvements Section of Appraisal
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much a Conventional Cash-Out Lends a First-Time Equity Borrower · How to Add or Remove a Borrower on a Conventional Cash-Out Refinance · Does a Quitclaim Restart Seasoning for a First Conventional Cash-Out?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.