The Quick Read: A solar lien and an unpermitted addition both have to be dealt with first, because the new VA loan must sit in first-lien position and the home must pass VA’s property standards. Most solar filings are cleared by paying the balance from the cash-out proceeds, with the solar company filing a release afterward. An unpermitted addition is handled case by case: the appraiser and lender decide whether to permit it, repair it, or leave the space out of value. Both issues shrink the cash you walk away with.
Most of these files come down to paperwork and sequencing, not eligibility. The borrower is usually fine. The file stalls because nobody identified what kind of solar obligation was sitting on the property, or nobody asked whether the finished basement had a permit. This article walks through both, step by step.
The mechanics below apply to a veteran refinancing the home they live in, using the VA cash-out refinance program. Every program figure is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Why Do These Two Issues Stop a VA Cash-Out?
A VA cash-out must be secured by a first lien, and the home must meet VA’s minimum property requirements. A solar obligation can threaten the first-lien position. An unpermitted addition can raise a property-condition question at appraisal. Either one can pause the file until it is resolved.
The first-lien rule has a statutory basis. Under 38 U.S.C. § 3703(d)(3)(A), a VA-guaranteed loan must be secured by a first lien on the realty, as laid out in VA Circular 26-16-18. The lender is responsible for properly securing that position. VA’s refinancing guidance for lenders adds that other lienholders must agree to subordinate to the new VA loan.
Here’s the good news. A VA cash-out is built to pay off existing liens. It can refinance a loan of any type into VA, and the proceeds can retire a solar balance. That is a real difference from the VA streamline refinance, where no loan other than the existing VA loan may be paid from proceeds.
The limit is value. The new loan can’t exceed 100 percent of the reasonable value VA determines, per the Federal Register notice on VA cash-out revisions. Across the wholesale programs Lendmire places VA files with, the cash-out reaches 100% of the appraised value including the financed funding fee. So a low appraisal means a smaller pool, and the solar payoff comes out of that pool first.
Key Terms Defined
UCC-1: A filing that gives public notice of a third party’s interest in equipment, such as a solar system.
Fixture filing: A notice recorded in county land records that treats the equipment as attached to the property. It shows up in a county title search.
UCC-3: The form the filer submits to terminate a UCC-1 or fixture filing after the debt is paid.
Subordination: A written agreement where a lienholder agrees to rank behind the new VA loan.
PPA (power purchase agreement): A contract to buy the power the panels produce, with the solar company owning the system.
PACE: A solar or energy program repaid through the property tax bill, which usually carries priority over a mortgage.
Minimum property requirements: VA’s standards that a home be safe, structurally sound, and sanitary.
Which Solar Obligation Do You Actually Have?
The fix depends on the instrument, so identify it before anything else. Pull the solar contract and the title report, then match what you find to one of five categories. A lease or PPA, a financed system with a UCC-1, a county fixture filing, a recorded solar deed of trust, and PACE each clear differently.
| Instrument | Where it shows | Effect on cash-out | Typical fix |
|---|---|---|---|
| Lease or PPA | Contract, sometimes a filing | Often no balance; payment may count in debt ratio | Buyout or transfer |
| Financed system with UCC-1 | State filing | Title company may want it handled | Payoff, then UCC-3 |
| Fixture filing | County land records | Visible in title search | Payoff, then termination |
| Solar deed of trust | County land records | True junior lien | Payoff or subordination |
| PACE | Property tax bill | Priority over the mortgage | Review under VA’s PACE rules |
A word on the UCC-1. The nonprofit GRID Alternatives says a UCC-1 filing is never a lien against the home. That’s one view, and it’s reasonable: the filing gives notice of an interest in the equipment. But a title company may still want any open filing handled before a new lien records. Treat the argument as background, not a plan.
Two traps show up on these files.
- A clean title report isn’t proof of a clean file. A state-level UCC-1 may not appear in a county title search. A fixture filing is more visible because it sits in county records. Search both levels.
- A paid-off system can still carry an open filing. The record stays until someone files the termination.
How Do You Clear a Financed Solar Lien, Step by Step?
For a financed system, the standard route is a payoff at closing followed by the solar company’s termination filing. The borrower can’t file the termination alone. The filer has to do it, so the file needs the filer’s written commitment before closing.
1. Identify the instrument. Read the contract, the title report, and any filing. Note the secured party’s exact name and whether the record is state-level or county-level.
2. Choose the path. Payoff at closing is the usual one. A subordination agreement works where the solar creditor will sign one. A recorded solar deed of trust must be paid or subordinated.
3. Request a written payoff. The lender needs a statement from the solar company with a per diem, wire instructions, and a commitment to release or terminate the filing. This is standard mortgage processing practice, not a VA-specific rule.
4. Order the VA appraisal. Value is set by a VA fee-panel appraiser. The appraised value caps the loan, and the payoff comes out of what’s left.
5. Close with the payoff on the Closing Disclosure. The solar payoff is a line item at settlement. This is a consumer mortgage, so a Loan Estimate and Closing Disclosure apply.
6. Confirm the release after closing. Make sure the UCC-3 or termination actually gets filed. Reconcile it against the payoff letter.
A lease or PPA works differently. There may be no balance to pay off, but the lease payment can still count in the debt-to-income review, and a buyout or transfer may be needed to clear a filing. VA’s own sources don’t address leases directly, so how an individual lender treats one is a question for the loan officer.
What About PACE?
PACE is a separate track because it’s repaid through the property tax bill. VA allows it in some cases. Circular 26-16-18 says properties encumbered with a PACE obligation may be eligible for VA-guaranteed financing if the lender meets the circular’s requirements. A superior claim is allowed only for delinquent, regularly scheduled assessments.
Whether a given local program meets those conditions depends on state and local law. So the first step is reading the PACE documents, not guessing. Paying PACE off through the cash-out is the cleanest route, though it is not the only one VA permits.
Other agencies treat PACE more strictly than VA does. Fannie Mae, for example, will not buy a loan on a property with an outstanding PACE loan unless the program does not give the PACE lien priority over first mortgages. That’s a conventional-loan rule, not a VA one, but it explains why a lender used to conventional files may ask more questions.
The CFPB has also finalized a rule that applies standard mortgage protections to PACE loans, including ability-to-repay. That matters for how the loan was originated, less for how you clear it.
How Does an Unpermitted Addition Affect the VA Appraisal?
VA policy does not impose a blanket ban on unpermitted additions. The outcome turns on minimum property requirements and on how the appraiser treats the space. Safety comes first. Value comes second.
Work through the questions in the order they come up:
- Does the work meet the MPRs: safe, sound, sanitary?
- What does the appraiser say about quality and marketability?
- Is the space counted in gross living area, or valued separately, or left out?
- Does local code enforcement require any action?
- Does the lender want a permit, a final inspection, or removal of the space?
Gross living area, under VA’s appraisal chapter, is finished, habitable, contiguous, above-grade space. A garage conversion or basement build-out may not meet that definition even when it’s well done. MPRs live in the Lenders Handbook and must be met before the guaranty certificate is issued, and the Federal Register confirms VA keeps that list in the handbook.
| Situation | Likely appraisal outcome | Common cure |
|---|---|---|
| Safe, well-built, no permit | Space may be excluded from value | Permit after the fact |
| Work not to code | Condition repair may be required | Bring to code |
| Safety or structural problem | MPR issue; file can stall | Repair or remove |
| Local code enforced at sale | Appraiser must describe it | Lender decides |
Those are the typical fixes: permit the work after the fact, bring it to code, remove it, or have the appraiser exclude the space. Which one applies depends on the lender and the appraisal. Lender overlays on permits vary, which is why a conversation with the loan officer before the appraisal is ordered saves a lot of trouble.
The financial point is simple. If the space is excluded, appraised value is lower, and that lowers the 100% cap. If a permit gets the space credited, value goes up and so does the pool. That swing flows straight into your net cash.
A Worked Example With Both Issues
Picture a veteran with a financed solar system and a finished garage room, both on one file. The title search shows a county fixture filing. The garage has no permit.
The order matters.
- First, the solar payoff letter. The loan officer requests it right away, since the solar company controls the release.
- Second, the permit question. The veteran calls the county about a retroactive permit before the appraisal, not after.
- Third, the appraisal. If the garage room is excluded, value drops. If permitted and credited, value rises.
- Fourth, the net cash. The new loan, capped at 100% of reasonable value, covers the solar payoff, any other liens, the funding fee, and closing costs. What’s left is the cash-out.
Run it in the wrong order and the payoff letter expires while the permit is still pending. Run it right, and each gap closes before the appraiser walks in.
What Does This Do to Your Cash and Your Budget?
A solar payoff reduces net cash. Net cash is the new loan less the payoff, other liens, the funding fee, and closing costs. Plan for that before you pick a cash-out amount.
The VA funding fee is waived for veterans receiving compensation for a service-connected disability and other exempt groups. Across the wholesale programs Lendmire places VA files with, the cash-out fee is 2.15% on first use and 3.3% on subsequent use. Because the fee can be rolled into the loan, it counts against that 100% cap too.
The monthly budget can move either direction. Wiping out a solar payment while raising the principal changes the monthly obligation both ways. Underwriting treats residual income as the controlling test, and the 41% debt-to-income figure is a guideline, not a cap. A higher ratio needs residual income well above the table.
PACE deserves its own warning. It sits on the tax bill, and the tax bill is part of the housing payment. The CFPB’s research, as reported by Mayer Brown, found that PACE financing raised homeowners’ property taxes substantially. That is the CFPB’s finding, relayed by a law firm.
VA’s refinance rule also requires an equity-removal disclosure. The lender must estimate the home equity being removed and explain that it may affect a later sale. The regulation is 38 CFR 36.4306. It also requires a net tangible benefit, and a new loan at or under 90 percent of reasonable value is only one of the listed ways to meet it. The cap stays at 100%.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
When Does a Cash-Out Need to Wait?
Sometimes the right call is to fix first and apply later.
- The solar company won’t produce a payoff or release. A defunct provider or a stalled payoff letter can hold a file indefinitely.
- The addition has a safety problem. Structural, moisture, or electrical issues need repair before an appraiser will clear the property.
- The appraisal math doesn’t leave enough cash. If the payoff eats most of the pool, the refinance may not do what you wanted.
- The existing loan is VA. A VA-to-VA cash-out carries seasoning: the later of 210 days from the first payment and the 6th payment. A recent VA loan may simply be too new.
An IRRRL is not a workaround here. It can’t pay off a solar loan. That is the whole reason the cash-out is the tool for this job.
Common Mistakes
- Assuming a UCC-1 is harmless and ignoring it until the title company flags it.
- Trusting a clean county title search without checking state filings.
- Paying off the solar loan and never confirming the UCC-3 was filed.
- Ordering the appraisal before asking the county about a retroactive permit.
- Treating a lease payment as if it won’t touch the debt ratio.
- Assuming 90% is the VA cash-out cap. It isn’t.
What to Do This Week
1. Pull the solar contract and the most recent title report.
2. Find the secured party’s name and any recorded filing.
3. Request a payoff statement with a release commitment.
4. Call the county about the permit status of any addition.
5. Bring all of it to the loan officer before the appraisal is ordered.
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. Lendmire’s consumer team is a mortgage broker arranging VA loans through wholesale lenders, and program figures remain subject to lender guidelines and full file review.
Frequently Asked Questions
Is a solar UCC-1 filing really a lien on my house?
Not in the usual sense. A UCC-1 gives notice of a third party’s interest in the equipment, and GRID Alternatives describes it as not a lien against the home. A county fixture filing is more serious, and a title company may still want any open filing handled before a new lien records.
Can a VA cash-out pay off my solar loan?
Yes. A VA cash-out can refinance any type of lien against the property, current or delinquent. An IRRRL cannot, since no loan other than the existing VA loan may be paid from its proceeds. The payoff comes out of the new loan, which is capped at 100% of reasonable value.
Will the appraiser count my unpermitted addition?
It depends on the work and the appraiser’s judgment. Unpermitted space may be excluded from value, or counted if it meets VA’s standards for gross living area and the minimum property requirements. A retroactive permit can change the result. The lender may also apply its own permit overlays.
Does paying off the solar company remove the filing from the record?
Not by itself. The filing stays on record until the solar company files a UCC-3 termination or releases it. Get a written release commitment with the payoff statement, and confirm the filing after closing.
What if I have a solar lease or PPA instead of a loan?
There may be no balance to pay off. The lease payment can still count in your debt-to-income review, and a buyout or transfer may be needed to clear a filing. How a lender treats it varies, so ask early.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA Circular 26-16-18 (PACE)
2. Federal Register, VA cash-out revisions
4. Fannie Mae Selling Guide B5-3.4-01
5. CFPB PACE final rule announcement
6. Federal Register, VA minimum property requirements
7. Mayer Brown, CFPB PACE final rule
This article is part of Lendmire’s VA Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Can a Surviving Spouse Use the VA Benefit for a VA Cash-Out? · How to Clear a Solar Lien Before a VA Cash-Out in a High-Cost State · Can You Use VA Cash-Out to Renovate a Condo?
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.