The Quick Read: Leased solar panels do not block a VA cash-out refinance, but they add no value to the appraisal. The lender still has to clear two things: the title filing the solar company may have recorded, and how the lease payment fits into your qualifying budget. The cash you can reach is set by the appraised value without the panels, up to 100% of that value including any financed funding fee.
Key Takeaways
- VA does not ban solar leases. Its property rules set how leased equipment is valued and how title must look.
- The appraiser reports the home’s value as if the leased panels were not there.
- A recorded filing from the solar company can hold up a refinance until it is released or subordinated.
- Whether the lease payment counts against your income is a lender decision, not a stated VA test.
- Leased, owned and loan-financed solar are different files. Treat “solar” as three categories, not one.
Is a Home With Leased Solar Eligible for a VA Cash-Out?
Yes, in most cases the lease alone does not disqualify the file. The VA cash-out is built for a home you live in, and the same core tests apply with or without panels: a valid certificate of eligibility, satisfactory credit, and enough income to cover your expected monthly obligations, per the VA home loans program page.
Across the wholesale programs Lendmire places VA files with, the lease rarely decides the outcome on its own. What decides it is the paperwork around the lease and what the appraisal does with it. The VA cash-out refinance program reaches up to 100% of the appraised value, including the financed funding fee, and it can refinance any existing loan type into a VA loan. That ceiling is where leased solar quietly matters, because the value it applies to excludes the panels.
One scope note. This article covers refinancing a home that already has a solar lease. If you want to add solar to a VA loan, that is a different product with different rules.
How Does VA Treat Leased Panels in the Appraisal?
VA gives leased solar no value. The VA Lenders Handbook, Chapter 12 tells the appraiser not to include leased mechanical systems or other leased equipment in the estimated market value. It gives the reason plainly: leased items are not suitable security for a loan. Its alternative-energy provision repeats the point for leased solar specifically.
Three more handbook details matter to a borrower:
- The appraiser must identify leased items in the report.
- Some leases can encumber title, which can leave the property as something less than a clean fee simple interest.
- The appraiser must consider any harm to value if the lessor later removes the equipment.
So a listing that advertised a large solar system does not change your number. The home appraises as if the system were not there. If you own the panels outright, or financed them with a personal loan, the treatment can differ. VA training material describes equipment with a personal loan as potentially having market value, while leased and UCC-filed systems are not valued. That training material is a few years old, so treat it as context and let your loan officer confirm the current handling.
What Is the 100% Limit, and Where Do Panels Fit?
The new loan cannot exceed 100% of the reasonable value. That comes straight from 38 CFR 36.4306, the rule that governs VA refinancing. VA Circular 26-19-05 adds that a financed funding fee cannot push the loan above reasonable value. Loan-to-value is the total loan, fee included, divided by the appraiser’s value.
In practice, the borrower’s math looks like this:
1. The appraiser values the home without the panels. 2. That value becomes the cap, at 100%. 3. Your payoff, any cash out, closing costs you finance and the funding fee all have to fit under it.
Picture a homeowner who assumed the solar system added meaningful equity. If the appraisal comes in on the home alone, the cash-out room is smaller than the listing’s marketing suggested. That is the most common surprise on these files, and it has nothing to do with whether the lease is allowed.
A common myth says VA cash-out stops at 90% loan-to-value. It does not. The rule allows up to 100% of reasonable value. Ninety percent shows up in the rule as a threshold for certain discount-point and benefit provisions, and some lenders set their own lower overlay. Some lenders do set a lower limit, so the number you see on one quote may not match another.
How Is the File Underwritten, Step by Step?
The deal works through the same stages as any VA cash-out, plus a solar-specific title layer. Here is the sequence as it typically runs.
1. Sort the structure. Is it a lease, a power purchase agreement (PPA), owned outright, or financed with a loan? A solar loan with a lien is a different file from a lease.
2. Gather the paper. Lenders typically ask for the full lease or PPA, the payment schedule, the transfer clause, the solar company’s contact details and any filing information. This list reflects lender practice, not a VA mandate.
3. Order the title search. A lease or PPA often produces a UCC-1 filing or a recorded notice. The solar company uses it to show that the panels belong to them. A nonprofit that works with solar owners, GRID Alternatives, describes it as a notice of the equipment owner’s interest.
4. Tell the appraiser the structure. Appraisal educators note that determining ownership and flagging liens is the lender’s job, not the appraiser’s. The lender passes that information along.
5. Complete the VA appraisal. The report values the home without the panels and notes the lease.
6. Run the net tangible benefit test. More on that below.
7. Underwrite income and credit. Residual income is the controlling test on VA files. The 41% debt-to-income figure is a guideline, not a cap, and a ratio above it needs residual income well above the table. Across the wholesale programs we place with, a 580 decision score is the usual floor, though VA itself sets no minimum.
8. Resolve the title filing and close. The lender must give the VA cash-out disclosures at the required points in the process, including again at closing, per the circular. Timing varies by file and lender. Skipping the disclosures can expose the loan to indemnification for up to 5 years.
Each stage matters, but two decide most outcomes: the loan-to-value on the panel-free value, and whether the solar company cooperates on the filing.
What Is the Title Filing Problem?
A UCC-1 filing is meant to cover the panels only, but it can still hold up a refinance. Both halves are true. Advocates for solar owners describe it as a notice, not a lien on the house. The CFPB’s solar financing issue spotlight says a UCC lien is technically not on the property, yet it can muddy title where a jurisdiction treats it as reaching the whole property. In that case it must be released or subordinated to the new mortgage.
A note on scope: the CFPB findings are about solar loans, not leases. They are useful here because they explain why the question exists at all. VA’s handbook raises the same concern from the lease side when it warns that some leases can encumber title.
For you, the options are usually these:
- Subordination. The solar company agrees its filing ranks behind the new mortgage.
- Release. The filing is removed, sometimes only for the closing.
- Payoff. You buy out the lease, which removes the issue entirely.
The catch is who decides. Releases and subordinations are typically at the solar company’s discretion, and a slow or refusing company can stall the file. Reaching out early is the single most useful thing a borrower can do. Any added steps will vary by company, so plan for possible delays without assuming a timeline.
How Does the Lease Payment Count?
Lenders decide this, and VA publishes no specific rule for it. How a solar lease payment is treated in debt-to-income or residual income is left to the lender’s judgment. What lenders do in practice is look at the payment as an ongoing monthly obligation. It may reduce your borrowing room if the lender counts it.
Because VA leans on residual income rather than a hard ratio, the question becomes whether the household still has enough left each month after obligations. A payment with an escalator, or one with many years remaining, can weigh more than a short, flat one. Borrowers with strong residual income often see the lease matter less. Borrowers near the edge of the table feel it more.
If the payment is a worry, buying out the lease before the refinance is one structure to price. It trades cash or financed balance today for a cleaner file and a lower monthly obligation. Whether that pencils depends on the buyout amount against the room you gain, so it deserves a side-by-side look before you commit.
What Must the Cash-Out Prove? The Net Tangible Benefit Test
Passing the loan-to-value limit does not satisfy the benefit test. They are separate gates. Under 38 CFR 36.4306, the refinance must give you a net tangible benefit, and the lender must give you a test showing it. Examples in the rule include eliminating monthly mortgage insurance, shortening the term, or converting an adjustable rate to a fixed one. A new loan at or below 90% of reasonable value is another listed benefit. VA’s lender training describes eight listed benefits in all.
The VA cash-out also carries seasoning, which on the wholesale programs we place with is the later of 210 days from the first payment and the 6th payment. A Type I cash-out, where the new loan does not exceed the payoff, carries a 36-month recoupment of fees and costs per VA training. The circular names the three refinance categories: IRRRL, Type I cash-out and Type II cash-out.
Where Does the General Rule Break?
Five situations change the answer.
Owned or loan-financed solar. If you own the panels or financed them with a personal loan, they may carry market value. If a loan with a lien is involved, the filing question applies to the lender on that loan instead of a lease company. Do not treat “solar” as one category.
Power purchase agreements. A PPA behaves like a lease for valuation purposes and often produces a similar title filing. The payment is tied to power produced rather than a fixed schedule, which can change how a lender looks at it.
Off-grid homes. A home that relies only on solar for power raises a separate property-eligibility question under VA’s minimum property requirements. That is a different test from the lease issue, and it is worth raising with the lender at the start.
The IRRRL. The VA streamline refinance generally needs no appraisal, so the no-value rule for leased panels does not usually come into play. It also pays out no cash. It still needs a net tangible benefit, a 0.5% funding fee unless exempt, and the seasoning noted above. If you only want a lower payment and not cash, the IRRRL may avoid this issue entirely.
Other loan types. Fannie Mae’s appraisal guidance on solar also excludes leased systems from value, and it separates owned, financed and leased categories. That is a conventional-program source, useful only as a parallel.
What Does It Cost You?
The funding fee is the main VA-specific cost. On a cash-out refinance it is 2.15% for first use and 3.3% for subsequent use, and it is waived for veterans receiving compensation for a service-connected disability and the other exempt groups. It can be financed, but it counts toward the 100% cap, so it eats into your reachable cash.
Cash-out proceeds are added to the new loan balance, which raises the interest you pay over the life of the loan. VA News makes the same point about cash-out costs. A UCC release, subordination or title cleanup can add steps on top. Describe any such costs to yourself as possible, and expect your Loan Estimate and Closing Disclosure to show what actually applies.
If you are weighing this against keeping a paid-off or low-balance home as is, Lendmire’s piece How to Get a VA Cash-Out Refinance on a Paid-Off Home walks through that equity question. And for a multi-unit primary residence, there is a separate piece How to Refinance Into a VA Cash-Out on a 2-4 Unit Primary Home.
Document Checklist
Gather these before you apply, so the title and underwriting steps do not wait on you:
- The full solar lease or PPA, including every page and amendment
- The current payment schedule and any escalator terms
- The transfer or assumption clause
- The solar company’s contact details and account number
- Any recorded filing or UCC information you received at installation
- Your certificate of eligibility
- Recent statements for the mortgage you are refinancing
Common Mistakes
- Counting the panels as equity. They add no appraised value under VA rules.
- Assuming a UCC-1 is harmless. It is meant to be, but it can still need a release.
- Waiting to contact the solar company. The release is at its discretion, so ask early.
- Confusing the IRRRL with the cash-out. They carry different appraisal and cash rules.
- Assuming VA bans leases. No VA source says that. The rules govern value and title.
Key Terms Defined
Lease or PPA: A contract where a solar company owns the panels and you pay to use them or the power they produce.
UCC-1 filing: A public notice a solar company records to show it owns the equipment on your home.
Subordination: An agreement that moves a recorded claim behind your new mortgage in priority.
Reasonable value: The appraiser’s value of the home, which caps a VA cash-out at 100%.
Net tangible benefit: The measurable gain a VA refinance must show you, such as a shorter term or a fixed rate.
Residual income: The money left each month after your debts and living costs, which VA uses as its controlling test.
Frequently Asked Questions
Can I get a VA cash-out refinance if my solar panels are leased?
Usually, yes. VA does not prohibit leased solar. The lender will review the lease, check title for a recorded filing, and underwrite the payment alongside your other obligations. Final eligibility depends on lender guidelines, your certificate of eligibility, credit and a full file review. Nothing here is a commitment to lend.
Will leased panels lower my appraised value?
They will not lower it, but they will not raise it either. VA tells appraisers to exclude leased equipment from value, so the home is valued as if the panels were absent. The risk is only to expectations: if you counted on the system to lift your equity, the cash available will be lower than you hoped.
Does the lease payment count against my qualifying income?
It may. VA publishes no specific rule on this, so lenders decide how to treat the payment. On VA files, residual income is the controlling test, so a household with strong monthly cushion often absorbs the payment more easily. Ask your loan officer how the lender will count it before you apply.
Do I need the solar company’s permission to refinance?
Often you need its cooperation. If the company recorded a filing that could affect title, the lender may require a release or subordination, and that is typically at the company’s discretion. Contact it early. If it refuses or stalls, a lease buyout or a different lender are the fallback paths to price.
Does a VA IRRRL avoid the leased-solar issue?
Largely, yes. The IRRRL generally requires no appraisal, so the no-value rule seldom comes into play. It pays no cash, though, so it only fits if your goal is a lower rate or moving from adjustable to fixed. It still has to show a net tangible benefit and meet seasoning.
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.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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.
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References
1. VA Home Loans — Benefits.va.gov
2. VA Lenders Handbook (Pamphlet 26-7), Chapter 12 — KnowVA
6. CFPB Issue Spotlight: Solar Financing
7. Fannie Mae: Appraising properties with solar panels
8. VA News
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: How to Get Your First VA Cash-Out on an Inherited Home · Can You Do a VA Cash-Out on a 2-4 Unit Home After Moving Out? · VA Cash-Out Appraisal Requirements for a 2-4 Unit Primary Home
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.