How FHA Loans Treat Solar Panels: Owned, Financed, Leased, and PACE Systems
Solar panels can lower your electricity bills, but when you're buying a home with an FHA loan, the financing for those panels may create a few complications.
If you're buying a house with solar panels, first find out who owns them and whether any claims are against them.
An FHA lender needs acceptable security for its mortgage. This means it must be clear who owns the panels and whether another lender has rights to them.
If the payment is inherited, it depends on who owned the payment. The US Department of Energy advises sorting this out early, since third-party systems may require extra steps to transfer.
| Who Owns Panels? | FHA Purchase Implications | |
|---|---|---|
| Owned & paid off | Homeowner | Usually simple with possible appraisal value |
| Financed with solar loan | Homeowner (usually), subject to loan terms | Lender reviews debt & any security interest |
| Leased or under a PPA | Solar company/ third party | Contract must meet FHA transfer rules since panels aren't owned equipment |
| Financed through PACE | It varies since the assessment attaches to the property | Outstanding assessment blocks standard FHA purchase financing |
The easiest to deal with are usually solar panels that have been paid off because there is no financing to sort out. They can also add value to a home, but an FHA appraisal does not automatically increase by the installation cost.
HUD’s appraisal guidance states that appraisers should consider the local market acceptance of the home and how the solar features add to its value. The Department of Energy suggests considering the system's age, warranties, maintenance records, and how much energy it generates.
The appraiser may also look at the condition of the panels and the age of the roof. That’s because if your roof needs work soon, you'll have an extra cost to remove and reinstall the panels.
Lastly, make sure the solar panels are fully paid off. Don’t take the seller’s word for it; verify ownership with proof of payment and copies of any lien releases.
A home with financed solar panels might still qualify for an FHA loan, but it depends on how the panels were financed.
Some solar loans are unsecured (the panels aren’t collateral), while others give the lender a legal claim on the equipment if the borrower doesn’t pay.
If the panels aren’t fully paid off yet, the seller can pay off the balance with the sale proceeds. Transferring the loan to the new buyer is theoretically possible, but it can get complicated because of what the original agreement allows and whether the lender will approve it. Either way, the buyer won’t automatically inherit the debt.
If you are buying a house with financed solar panels, ask the homeowner for the financing agreement, a current payoff statement, and UCC filings.
Buying a house with leased solar panels means the solar provider, not the homeowner, owns the equipment. Depending on the agreement, the buyer will either pay a monthly fee to use the panels or pay for the electricity they produce under a power purchase agreement (PPA).
Fortunately, having leased panels doesn't automatically disqualify a home from FHA financing.
HUD's handbook allows leased systems and PPAs if they meet its requirements, including ensuring the lease or PPA can’t restrict your ability to sell or transfer the home in the future.
Additionally, because the seller doesn't own the panels, an FHA appraiser can't include their value in the home's appraisal. A Berkeley Lab study likewise found no price premium for third-party-owned solar, unlike homeowner-owned solar panels.
PACE stands for Property Assessed Clean Energy. Instead of making a regular solar loan payment, homeowners pay for the upgrades through an assessment on their property tax bill. The catch is that failing to pay PACE assessments can lead to consequences similar to failing to pay property taxes.
Because PACE liens can take priority over the mortgage, lenders may pay delinquent assessments before the mortgage after a default. And selling the house doesn't mean they're gone. The unwary buyer may find himself with a higher property-tax bill than expected.
Under HUD Mortgagee Letter 2017-18, properties with outstanding PACE obligations are ineligible for FHA-insured forward mortgages, including standard purchases.
That’s because the lien, not the panels, is the problem.
Usually, the practical solution is to pay off the assessment and clear the obligation by closing.
The seller may use the sale proceeds, or the parties could negotiate who covers the payoff. Have the title company obtain an official statement and confirm how the release will be recorded. Whatever you do, don't accept a verbal promise that you can simply keep making the tax payments.
If the lease or PPA complies with FHA rules for transferring the property, then yes, you can get an FHA loan for a house with leased solar panels.
No, not while the PACE obligation is attached to the property.
Yes, but only if they’re owned outright.
No, not automatically. It depends on the loan terms and what the parties negotiate. In some situations, the seller may be required to pay it off (which they can do with the proceeds of the home sale, if necessary).
The lender and title company may need a payoff, release, or clarification, which could delay closing, since the purchase could be stopped if the claim isn't resolved and conflicts with FHA requirements.
