Can You Get a Reverse Mortgage on a Home with Solar Panels?
Key Takeaways
- Homes with owned solar panels easily qualify and appraise for higher values.
- Homes with leased solar panels require the lender to review the lease contract.
- PACE/HERO solar loans placed as tax liens must be paid off before closing.
As energy costs soar, millions of seniors are installing solar panels on their roofs. When it comes time to apply for a reverse mortgage, those solar panels can either be a massive benefit or a deal-killing legal nightmare, depending entirely on how they were financed.
Scenario 1: You Own the Solar Panels Outright
If you paid cash for your solar panels, or if you took out a personal unsecured loan and the panels belong to you, congratulations.
The FHA fully supports homes with owned solar panels. Furthermore, the FHA appraiser will add significant value to your home appraisal because the panels are a permanent fixture that generates energy. A higher appraised value means you can borrow more money from your reverse mortgage.
Scenario 2: You Lease the Solar Panels
If a solar company installed the panels for "free" and you pay a monthly lease fee for the power, things get complicated.
Because you do not own the panels, the solar company usually files a UCC-1 fixture filing on your property title. This alerts the world that they own the equipment on your roof.
To approve a reverse mortgage, the FHA requires your lender to review the solar lease contract. The lease must explicitly state that if your home is foreclosed upon, the solar company will not block the transfer of the property and will simply remove their equipment or negotiate a new lease with the buyer. Most major solar companies have standard subordination agreements ready for this exact scenario, but it will delay your loan closing.
Scenario 3: PACE or HERO Loans (The Deal Killers)
The biggest danger involves PACE (Property Assessed Clean Energy) or HERO loans.
These are municipal programs that allow you to finance solar panels by attaching the loan directly to your county property tax bill.
The FHA strictly forbids reverse mortgages on homes with active PACE or HERO assessments. Why? Because property tax liens take priority over the FHA's mortgage lien. If the home goes into foreclosure, the county would get paid for the solar panels before the FHA gets paid for the mortgage.
If you have a PACE loan, you must use a portion of your reverse mortgage proceeds to pay off the PACE loan in full at closing.