The Quick Read: No. A subordinate lien does not get an FHA cash-out past its cap, because the cap applies to the combined debt, not just the FHA first mortgage. The 80% limit is measured against the appraised “Adjusted Value,” and every lien that stays on the home counts toward it. A second mortgage or HELOC does not add room. It uses room up.
The Short Answer, Stated Plainly
HUD’s rule is simple. For case numbers assigned on or after September 1, 2019, the maximum LTV or CLTV on an FHA cash-out refinance is 80 percent of the Adjusted Value. That change came from HUD Mortgagee Letter 2019-11, which cut the earlier 85 percent figure to 80 percent.
The “CLTV” part matters most. CLTV means combined loan-to-value: the first mortgage plus every other lien, divided by value. So a second lien that stays in place does not sit outside the cap. It sits inside it.
Across the wholesale programs Lendmire places FHA files with, the cash-out limit is 80% LTV on a home the borrower has owned and occupied for 12 months before the case number. That is the working number for this question. Everything below is about how the combined total gets counted. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Key Takeaways
- The FHA cash-out cap is 80% of Adjusted Value, measured on all liens combined.
- A new or existing second lien reduces the room for the new first mortgage.
- A HELOC counts at its full credit limit, not just the drawn balance.
- Older rules that allowed an unlimited combined ratio were removed years ago.
- Streamline refinances follow different rules, and they are not cash-out.
- Meeting the cap does not by itself mean approval. Lenders review the whole file.
Key Terms Defined
Adjusted Value: the appraised value, as adjusted under FHA rules, that the LTV is measured against.
Subordinate lien: any loan secured by the home that ranks behind the first mortgage, such as a second mortgage or HELOC.
CLTV (combined loan-to-value): the total of the first mortgage and all other liens, divided by the home’s value.
Subordination agreement: a recorded document where the second-lien holder agrees to stay behind the new first mortgage.
HELOC: a home equity line of credit, which has a credit limit and a drawn balance.
Upfront premium: the FHA mortgage insurance charge that is financed into the loan, 1.75% of the base loan on these programs.
How Is the Combined Total Counted?
The combined total is the new FHA first mortgage plus every lien that remains on the property, tested against 80% of Adjusted Value. If the total goes over, the loan does not fit. The fix is a smaller first mortgage, not a bigger second.
Here is what counts:
| Item | Counts toward the 80%? |
|---|---|
| New FHA first mortgage | Yes |
| Existing second lien left in place | Yes |
| HELOC left in place | Yes, at its credit limit |
| New second lien | Yes |
| Second lien paid off in the new loan | Yes, as part of the new first |
Three ceilings can apply at once, and “above its cap” can mean any of them:
1. The percentage ceiling. 80% of Adjusted Value on the first mortgage alone.
2. The combined ceiling. The same 80%, measured on all liens together.
3. The dollar limit. County loan limits apply, and they change every year. The first mortgage plus subordinate liens also cannot exceed the nationwide mortgage limits in the National Housing Act.
A borrower can be under one ceiling and over another. The tightest one controls.
Where Does the “Above the Cap” Idea Come From?
It comes from older rules that no longer apply, and from other FHA transactions that allow higher combined leverage. Both get mixed together online.
The history runs like this. In 2009, FHA had moved the cash-out limit from 95 percent to 85 percent. Around that time, HUD Mortgagee Letter 2009-08 let an existing subordinate lien stay in place, behind the FHA first, regardless of total indebtedness, as long as the borrower qualified for the payments on all liens. That flexibility is superseded. It is not current policy.
Then HUD Mortgagee Letter 2010-24 eliminated the unlimited CLTV. Apart from streamline refinances, the FHA first mortgage plus any subordinate lien may not exceed the applicable LTV ratio or the geographic maximum mortgage amount. Then 2019 lowered the cash-out figure to 80 percent.
Other FHA paths still reach higher. The FHA rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months. Streamlines have their own combined-ratio treatment. None of that carries over to cash-out. Search results that quote a higher number are usually describing one of these other transactions, or an archived rule.
Three Scenarios With a Second Lien
Picture a homeowner whose home appraises at some value. Call that 100% of Adjusted Value for the math. The cash-out cap is 80%. Percentages only, no dollars.
Scenario one: an existing second paid off in the new loan. The existing second is 10% of value. The new first mortgage pays it off along with the old first. The whole new first mortgage must land at or under 80%. The payoff of the second is simply part of that amount. Cash to the borrower is whatever is left after all payoffs and costs.
Scenario two: an existing second kept and re-subordinated. The second stays at 10% of value. The new first mortgage can then be at most 70%, because 70% plus 10% reaches the 80% cap. The second-lien holder must sign a recorded subordination agreement. If the holder refuses, this path is closed.
Scenario three: a new second lien added at closing. A new second does not create extra room. If the new first is 70% and the new second is 10%, the total is 80%. Anything beyond that breaks the cap. Lender guidelines vary on whether new subordinate financing is allowed on a refinance at all, so this scenario is the one most likely to be restricted.
The pattern is the same in all three. The total cannot pass 80%. A second lien only changes how that 80% gets divided.
Existing HELOC or Second: Pay Off, Keep, or Restructure?
Most files in this situation turn on one decision. Here is how the options compare.
| Option | What happens to the cap | Main friction |
|---|---|---|
| Pay it off in the new loan | New first carries the full amount, up to 80% | Cash-out shrinks by the payoff |
| Keep it and re-subordinate | New first limited to 80% minus the second | Lien holder must agree and sign |
| Reduce a HELOC limit | Lower limit frees up cap room | Needs documentation of the permanent reduction |
| Close the HELOC only | Depends on lender review | Needs paperwork showing it is closed |
The HELOC point trips up more borrowers than any other. Under HUD’s older Handbook language, the lender uses the maximum accessible credit limit of the existing subordinate lien to calculate the CLTV. A HELOC with a small drawn balance can still use up a large share of the cap. A borrower who thinks “I only owe a little on it” can be surprised when the file counts the whole line.
The current HUD Handbook 4000.1 governs today’s files, and lenders apply it with their own overlays. The older text is useful for understanding the logic, but the current Handbook controls. It is posted on HUD’s Handbook page.
What Does a Subordination Request Involve?
A subordination request asks the second-lien holder to stay behind the new first mortgage. It requires that holder’s cooperation, and the holder can say no.
On files where the second stays, expect these items:
- Payoff statements for the existing liens.
- A copy of the second-lien note and deed.
- A recorded subordination agreement.
- For a modified HELOC, documentation that the credit line was permanently reduced.
The lender also has to confirm the borrower can afford the payments on every lien, not just the new FHA loan. A second lien that stays means a second monthly obligation that goes into the ratios. On these programs the base ratio pair is 31/43 (housing and total) with no compensating factors. Documented compensating factors can reach 40/50 at the top tier, and the automated finding governs most files. Keeping a second often pushes the total ratio higher, so it is worth testing before choosing that path.
Some lenders also set tighter rules than HUD, such as limits on adding new subordinate financing. That is a lender overlay, not a HUD rule, and it varies from one wholesale lender to the next. Brokers see this often: two lenders under the same HUD floor will treat the same second lien differently.
Other Limits That Can Bind First
A borrower can fit under 80% and still hit another wall. Check these before assuming the cap is the only issue.
Ownership and occupancy. The home must be a primary residence. On the wholesale programs Lendmire works with, the FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. Properties acquired inside that window are limited. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Payment history. Lenders look at the mortgage payment record. A recent late payment can change the answer regardless of equity.
Credit. The programs Lendmire places FHA loans with start at a decision score of 580. HUD itself has a lower tier, but the wholesale network does not reach below 580. Some lenders set a higher floor.
Appraisal. The cap is a percentage of the appraised value. If the appraisal comes in low, every dollar figure shrinks. Lendmire’s piece How a Low Appraisal Limits an FHA Cash-Out at the Cap walks through that.
Mortgage insurance. The upfront premium is 1.75% of the base loan and is financed. The annual premium runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV. On a thirty-year loan above ninety percent LTV the annual premium lasts for the term; at or below ninety percent it ends after eleven years. A cash-out at 80% falls on the lower side of that line. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
State law. Some states have their own home equity rules, and Texas is the one most often raised. A cash-out there can be structured differently. That is a state-law question for the lender to resolve.
Section 247. Mortgages insured under Section 247 were exempt from the 2019 reduction, per the same letter. That is a narrow exception.
Why Do Older Numbers Still Circulate?
Because old agency documents stay online, and search tools surface them. A reader can land on a letter from the early part of the last decade and think it describes today’s cap.
A short timeline helps:
1. Cash-out limit was 95 percent, then moved to 85 percent in 2009. 2. A short-lived rule let existing seconds stay regardless of combined ratio. 3. That rule was eliminated, restoring a combined limit. 4. The cash-out limit dropped to 80 percent for newer case numbers.
An older program also allowed a higher combined ratio for underwater borrowers. It is historical and should not be treated as available. The streamline refinance is the one transaction that still has its own combined-ratio treatment, and it allows no cash back.
Only the 80% figure applies to a new cash-out. Case numbers assigned before September 1, 2019 fell under the old 85 percent limit, and those are long gone.
FHA or Conventional for This Structure?
Both put the second lien inside the combined total, so a second does not escape either cap. The difference is how much room each leaves and what insurance costs attach.
An FHA cash-out stops at 80%, and it carries both the upfront and annual premium described above. A conventional cash-out has its own leverage limit and its own mortgage insurance rules, and Lendmire covers the question of going past that cap in its piece Can a Conventional Cash-Out Go Above the Cap Without Mortgage Insurance?. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. Borrowers with strong credit and a large second sometimes compare conventional because the structure and insurance work differently.
The right choice depends on credit, how large the second lien is, and what the cash is for. A side-by-side comparison on the actual file is better than a rule of thumb.
What If the Numbers Don’t Fit?
If the combined total lands over 80%, there are four moves. None involve going past the cap.
1. Take less cash. A smaller cash-out lowers the first mortgage and brings the total back under.
2. Pay off the second in the new loan. This removes the separate lien, though the payoff comes out of the cash.
3. Reduce the HELOC limit. A permanent reduction, documented, frees cap room.
4. Wait for value or balance to change. More equity from payments or a higher appraisal changes the math.
Some borrowers have an existing FHA loan and want something simpler. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It does not pay out cash, so it is a different tool for a different goal.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Can I add a new second mortgage to push an FHA cash-out higher?
No. A new second counts toward the same combined cap, so it divides the 80% instead of adding to it. Some lenders also restrict new subordinate financing on refinances, which makes this path harder than it looks.
Does an unused HELOC count against the cap?
Yes, in most cases. HUD’s guidance counts the maximum accessible credit limit, not just the drawn balance. A borrower can lower the limit permanently, with documentation, to free up room.
Is the cap 85% or 80%?
80% applies to current files. The 85 percent figure belonged to case numbers assigned before September 1, 2019, and it still shows up in older articles.
Do I need an existing FHA loan to do an FHA cash-out?
No. The existing loan can be a different type. What matters is owning and occupying the home for 12 months before the case number, plus the payment record and the rest of the file.
If I fit under 80%, am I approved?
Not automatically. The cap is one test. Lenders also review credit, income, ratios, payment history, occupancy and the appraisal, and every figure is subject to lender guidelines and full file review.
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. The FHA cash-out refinance program page lays out the basics, and Lendmire is a mortgage broker, not a lender, so nothing here is a commitment to lend.
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. HUD Mortgagee Letter 2019-11
2. HUD Mortgagee Letter 2009-08
3. HUD Mortgagee Letter 2010-24
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Why an FHA Cash-Out Still Beats a Second Lien for Some Homeowners · FHA Cash-Out Appraisal Requirements for Value and Repairs · How to Compare an FHA Cash-Out With Alternatives on Total Cost
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.