The Quick Read: Solar panels and unpermitted space do not automatically block a VA cash-out, but they change the file in two places. The new VA loan must sit in first lien position, so anything attached to the title has to be paid off, released, or moved behind it. The appraisal also counts only what the appraiser can credit, which can shrink the cash you walk away with. Which of these applies to you depends on how the solar was financed and whether the extra space meets VA’s property standards.
Key Takeaways
- A VA cash-out refinance can pay off an existing solar loan from the proceeds, which clears the lien but cuts your net cash.
- A lease or power purchase agreement (PPA) gets no appraisal value, so it adds nothing to the loan amount.
- A solar assessment added to your property tax bill is the hardest case, because it sits ahead of a mortgage.
- Unpermitted space is not an automatic denial. The appraiser decides whether it counts, needs repair, or gets excluded.
How VA Cash-Out Handles Liens
The VA cash-out refinance program replaces your current mortgage with a new VA-backed loan and can hand you the leftover equity. You can use it to refinance any loan type into VA, and your home must be your primary residence. Lendmire arranges the VA cash-out refinance program through wholesale lenders, and every figure here is subject to lender guidelines and full file review.
Here is the part that matters for solar. The new loan can be as large as 100% of the appraised value, and that ceiling includes the funding fee if you finance it. Across the wholesale programs Lendmire places VA files with, the funding fee on a cash-out is 2.15% for first use and 3.3% after that. Veterans receiving compensation for a service-connected disability, and other exempt groups, do not pay it.
VA’s Lenders Handbook Chapter 3 says the same thing in its own words: a cash-out loan, funding fee included, may not exceed 100% of VA’s determined reasonable value. The Federal Register rule adds the practical wrinkle. If the financed fee would push you past 100%, the overage is paid in cash at closing.
Many borrowers still carry an old idea that VA cash-out stops at 90%. That was the historical limit, and the current rule is 100%. Some lenders set their own lower ceiling, and that is a lender choice, not a VA rule.
Now the lien rule. VA requires its guaranteed loan to sit in first position on the property, and the lender is responsible for making sure it does. Anything recorded against the home that would rank ahead of the new loan has to be cleared first. VA Circular 26-16-18 lays out the first-lien requirement.
What Kind of Solar Do You Have?
The answer depends on the paperwork behind the panels, not the panels themselves. Solar gets paid for in five common ways, and each one shows up differently on title.
| Structure | What shows up | Effect on first lien | Typical path |
|---|---|---|---|
| Owned outright | Nothing | None | No action |
| Financed, equipment filing (UCC-1) | Filing on the equipment | Often must be cleared | Payoff and termination |
| Financed, recorded deed of trust | Lien on the home | Yes | Payoff or subordination |
| Lease or PPA | Lease, sometimes a title note | Depends on recording | Provider letter or payoff |
| PACE assessment | Charge on the tax bill | Yes, ranks ahead | Payoff |
A few notes on that table. A UCC-1 is a public filing against equipment rather than the house, and it still tends to appear on the title search. Lenders and title companies usually want it terminated with a UCC-3 once the loan is paid off. A recorded solar deed of trust is a real lien on the home, which is more serious. These clearing paths come from common title practice, not from a single VA rule, so your lender and title company set the exact steps.
Why PACE Is the Hard Stop
PACE stands for Property Assessed Clean Energy. It is solar financing repaid through your property tax bill, and it generally ranks ahead of a mortgage in line to be paid. That ranking is exactly what a VA first-lien rule does not tolerate.
VA’s 2016 circular allowed PACE to remain only when the property was never subject to a claim ahead of the VA loan for the full outstanding PACE balance. A claim for delinquent scheduled assessments was the only exception. Whether that circular remains in force today is something to confirm with your lender, so treat it as the historical baseline. The practical expectation is that the lender will want the PACE balance paid off, or written proof that it does not outrank the new loan.
A cash-out refinance happens to be a natural way to do that. The proceeds can retire the assessment. The tradeoff is that you convert a tax-bill obligation into mortgage balance, which uses up equity you might have taken as cash.
How the Appraiser Treats Solar
Leased solar gets zero value. VA’s Handbook Chapter 12 tells appraisers not to count leased mechanical systems or equipment, and it names solar, wind, and PPAs specifically. The appraiser must identify the leased items in the report and consider how value changes if the lessor removes them. Some leases also encumber the title, which means the property is less than a clean, fully owned parcel.
Picture a homeowner with leased panels who expects the roof upgrade to lift the appraised value. It will not. The value base stays where it would be without the panels. Since the loan is capped at a percentage of that value, there is no extra borrowing room.
Owned solar is a different conversation, and the appraiser looks at how the local market views it. Confirm that detail with your lender before you count on it.
Where the Cash Goes
Think of cash-out proceeds as a short chain. The new loan, capped at 100% of value including the funding fee, pays off your current mortgage first. It then pays off any other liens, including a solar loan or PACE balance. Closing costs and the financed fee come out next. What remains is yours.
So every lien cleared from proceeds reduces your net cash by the same amount. If the panels were financed and the balance is large relative to your equity, the cash can shrink to very little. That is not a penalty. It is arithmetic.
Underwriting also sees the payment side. The lender must verify all your debts and obligations, and a solar loan or lease payment is a recurring obligation to document. Residual income, the money left each month after major expenses, is the controlling test on VA loans. The 41% debt-to-income figure is a guideline rather than a cap, though a ratio above it needs residual income well above the table. Paying off a solar debt through the refinance can ease the monthly picture, though you are trading it for a bigger mortgage balance.
Most wholesale programs start at a 580 decision score. VA itself sets no minimum, so a lender may set a higher floor.
Unpermitted Additions: Not an Automatic No
No VA rule states that “unpermitted equals ineligible.” What the VA appraisal process does say points toward a different question: does the space meet VA’s Minimum Property Requirements, and is it safe?
VA appraisals are written “subject to” repairs needed to meet those requirements. The appraiser recommends repairs and does not perform an inspection. The appraisal report chapter adds that space not meeting the criteria for gross living area is valued separately on the sales grid. The appraiser must also consider how an inferior addition or conversion affects marketability.
That leaves three realistic outcomes:
1. The space counts. It meets standards and is valued like the rest of the home.
2. The space is valued lower or excluded. The appraised value drops, and the loan ceiling and cash drop with it.
3. The space triggers repairs. If something is a health or safety problem, the appraisal can be made subject to fixing or removing it.
Ask your lender how its overlays treat unpermitted work. Local code enforcement can also play a part, and it varies by place. Waiver options that appear in some purchase-focused guidance do not necessarily carry over to a refinance.
A Repair Route Worth Knowing
VA has allowed a cash-out loan where alterations or repairs are included in the value and completed after closing. Proceeds go to the contractor in draws, and you approve each one. VA Circular 26-18-6 describes this, but it is dated, so check with your lender that it still applies. It may offer a path for fixing or legalizing a flagged addition, if your lender participates.
When Both Issues Hit One File
Say a homeowner has financed panels with an equipment filing and a converted garage with no permit. The order of operations looks like this:
1. Pull the contract for the panels to see exactly what was recorded. A title search and UCC search will confirm it. 2. Request a payoff statement from the solar company early, since the lien holder controls that timing. 3. Ask the lender whether the garage conversion will be treated as living area, valued separately, or flagged for repairs. 4. Add up what must be paid off against the likely appraised value and the 100% ceiling. 5. Compare the net cash with what you hoped for before you commit.
In many files of this type, the solar payoff and the excluded space both subtract from cash at once. Running that picture before the appraisal prevents surprises.
Key Terms Defined
First lien: The lien with top priority on the property. If the home is sold or foreclosed, it gets paid first.
UCC-1: A public filing that records a lender’s claim on equipment such as solar panels, rather than on the home itself.
UCC-3: The form that terminates a UCC-1 after the debt is paid.
Subordination: An agreement where an existing lienholder agrees to rank behind the new loan.
PPA (power purchase agreement): A contract where a provider owns the panels and you pay for the electricity they produce.
PACE: Solar or energy financing repaid through the property tax bill, generally ranking ahead of a mortgage.
MPR (Minimum Property Requirements): VA’s standards for a home’s safety, soundness, and sanitation.
Residual income: The money left each month after major obligations, VA’s controlling underwriting test.
Documents to Gather
- The solar contract, showing whether it is a loan, lease, PPA, or PACE
- A payoff statement or provider letter
- Any recorded filing, such as a UCC-1 or deed of trust
- Permit or zoning records for the addition, if they exist
- Your certificate of eligibility (COE) from VA
If you have used VA benefits before, the remaining entitlement question can matter too. Lendmire’s piece VA Cash-Out Entitlement Rules for an Existing VA Loan Refinance walks through that.
Frequently Asked Questions
Can I do a VA cash-out refinance if I have a solar loan?
Often yes, subject to lender guidelines. The new loan must hold first position, so the solar loan or its filing is typically paid from proceeds, released, or placed behind the new loan. Paying it off reduces your net cash.
Does a solar lease or PPA block the loan?
Not by itself. Leased panels get no appraisal value, and the lender will want the lease documented and its payment counted as an obligation. If the lease is recorded against title, the lender may ask for a provider letter or a payoff.
What happens with PACE?
PACE is the toughest case because it generally ranks ahead of a mortgage. Expect the lender to require payoff or proof that it does not outrank the new VA loan. Cash-out proceeds can retire it.
Will unpermitted space lower my cash?
Yes, it can. If the appraiser excludes or separately values the space, the appraised value falls, and the 100% ceiling falls with it. If the space raises a safety concern, the appraisal may be conditioned on repairs.
Does paying off solar change my funding fee?
No. The fee depends on use and the loan type, and the cash-out figure is 2.15% for first use or 3.3% after, unless you are exempt. A financed fee counts inside the 100% ceiling.
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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA Lenders Handbook, Chapter 3: The VA Loan and Guaranty
2. Federal Register: VA cash-out refinance rule
4. VA Lenders Handbook, Chapter 12: Minimum Property Requirements
5. KnowVA – VA Lenders Handbook Ch. 11
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: VA Cash-Out Occupancy Rules for a Surviving Spouse · VA Cash-Out Refinance Criteria on a Paid-Off Home · How to Apply for a VA Cash-Out Refinance Step by Step
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.