The Quick Read: An open HELOC does not rule out an FHA cash-out refinance, but it forces a choice. You either pay the line off inside the new loan, or the HELOC lender agrees to stay in second position behind it. Either way, the 80% limit on the new loan covers all your home loans combined, so the HELOC shrinks the cash you can take. Everything below is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Key Takeaways
- The new FHA loan can reach 80% of the home’s appraised value. That cap counts the first mortgage plus the HELOC if the line stays open.
- An open line can count at its full credit limit, not just the balance you’ve drawn.
- Keeping the HELOC means its lender must sign a subordination agreement. That lender can say no.
- Paying it off is simpler, but the payoff comes out of your cash.
- Streamline refinance rules are a different product. Don’t apply them to a cash-out.
Key Terms Defined
Cash-out refinance: A new mortgage that replaces your current first mortgage and gives you some of your home equity as cash.
HELOC (home equity line of credit): A revolving credit line secured by your home, usually recorded as a second mortgage behind your first.
Subordination agreement: A signed document where the HELOC lender agrees its lien stays behind the new first mortgage.
Combined loan-to-value (CLTV): All the loans secured by the home, added together, divided by the home’s appraised value.
Lien position: The order in which lenders get repaid if the home is sold or foreclosed. First position gets paid first.
Zero-balance line: A HELOC you haven’t drawn on. The lien is still recorded, and the credit limit still exists.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.24% as of October 29, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
Why Does an Open HELOC Change an FHA Cash-Out?
An open HELOC changes two things: lien order and leverage room. When your old first mortgage is paid off at closing, the HELOC would normally move up to first position. A new FHA lender will not accept that. FHA insurance requires the new loan to sit first.
So the HELOC has two possible fates. It gets paid off and closed, or its lender agrees to stay behind. That’s the whole fork.
Leverage works the same way. The FHA cash-out limit is 80% of value, and it applies to everything secured by the home. Say the new FHA loan is 60% of value and you want to keep a HELOC with a limit of 25% of value. That adds up to 85%. The file is over the cap even if the line is empty.
The size of the HELOC limit matters more than its balance. A large line you barely touch can eat up your borrowing room. Plenty of homeowners miss this. They look at what they owe on the line, not what it allows.
If you want to see the program on its own terms first, Lendmire’s FHA cash-out refinance program page lays out how the loan is arranged.
What Are the Core FHA Cash-Out Requirements?
The core requirements are 80% maximum leverage, 12 months of ownership and occupancy, a clean recent payment record, and credit and income that fit the program’s ratios. Here is the short version, using the figures that apply across the wholesale programs Lendmire places FHA files with.
| Factor | FHA cash-out refinance |
|---|---|
| Maximum leverage | 80% of appraised value, all liens combined |
| Occupancy | Owned and lived in as your home 12 months before the case number |
| Payment history | Mortgage payments made on time, reviewed by the lender |
| Credit | Decision score of 580 or higher on the programs Lendmire places |
| Ratios | 31/43 base; up to 40/50 with documented factors |
| Upfront premium | 1.75% of the base loan, financed |
| Annual premium | 0.15% to 0.75% of the balance, by term, amount and LTV |
| Loan limits | County loan limits apply |
Ratios are your housing payment and total debt payments as a share of income. The automated underwriting finding governs most files. If a HELOC stays open, the lender counts its required payment as debt. If you pay it off, that debt goes away, though the new FHA payment is larger.
The 80% cap is a federal rule, not a lender preference. HUD Mortgagee Letter 2019-11 cut the maximum LTV and combined LTV on FHA cash-out refinances to 80% of adjusted value. HUD’s announcement framed the change as a way to keep more equity in cash-out loans. Older, higher caps you may see online are outdated. HUD now folds this guidance into Handbook 4000.1, its consolidated rulebook for FHA lending.
Two points about that cap trip people up. A higher credit score does not raise it. Score affects approval and pricing, not the ceiling. And individual lenders may add their own requirements on top of HUD’s, so the same file can read differently across lenders.
The 12-month clock and the payment-history review are separate tests. You can pass one and fail the other. Confirm the exact current wording in the handbook, since it has been revised over time.
One note on mortgage insurance. At 80% LTV on a thirty-year loan, the annual premium ends after eleven years. Above 90% LTV it would last the full term. A cash-out under the cap sits on the shorter side of that line. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Option One: Pay the HELOC Off Inside the Refinance
Paying the HELOC off at closing is the simpler path. The new loan’s proceeds pay off the old first mortgage and then the HELOC. The line is closed. You end up with one loan and one payment.
The tradeoff is cash. The payoff comes out of the same 80% room that would otherwise become money in your pocket. If you drew a lot on the line, a big share of your equity goes to clearing it.
Three practical points:
- Order payoff letters early. You need one for the first mortgage and one for the HELOC. Ask the HELOC lender for a closure form too, so the line is formally closed and not just emptied.
- Your ratios improve. The HELOC payment drops out of your debts. The new FHA payment is bigger, but it’s one payment, and it’s fixed.
- Watch the classification. Whether paying off a HELOC counts toward cash-out depends on how the line was used and the rules in effect. Legacy HUD text was generous on no-cash-out refinances. Current handbook wording needs confirming before you assume a HELOC payoff keeps you in a rate-and-term refinance.
Option Two: Keep the HELOC and Subordinate
Keeping the line means your HELOC lender must sign a subordination agreement. That is a legal document placing its lien behind the new FHA first mortgage. Your new lender cannot force the HELOC lender to sign.
The Consumer Financial Protection Bureau says you may need your HELOC lender’s approval to refinance the first mortgage, that the lender can refuse, and that you may then have to pay the HELOC off. Plan for both outcomes.
Older HUD handbook text, since superseded, said an existing HELOC could stay only if it was subordinate to the FHA-insured loan. It also said the lender must count the maximum accessible credit limit of the line. That legacy handbook chapter is a background source, and the current handbook controls. But the logic carries into how files are built today: the whole line counts, drawn or not.
Here is what decides whether subordination works:
- The size of the request. HELOC lenders weigh a request more carefully when the new first mortgage is larger than the old one. That’s exactly what a cash-out does.
- Their internal rules. An old subordination from a past refinance does not carry over. Each new first mortgage needs a fresh agreement.
- Your file. Equity, payment history and credit all show up in their review.
If the HELOC lender is slow or says no, the closing waits. The new lender won’t fund until the agreement is signed and recorded. That is a good reason to contact the HELOC lender at the start, not the end.
A subordination also adds a third party and sometimes a fee from the HELOC lender. Fees vary, and you’ll see any charges on your Loan Estimate and Closing Disclosure.
Pay Off or Subordinate? Side by Side
| Factor | Pay off the HELOC | Keep it and subordinate |
|---|---|---|
| Cash to you | Lower: payoff uses equity | Higher only if the full limit still fits under 80% |
| Combined-debt room | Only the new first counts | New first plus the full HELOC limit |
| Monthly payments | One larger FHA payment | FHA payment plus the HELOC payment |
| Your ratios | HELOC debt removed | HELOC payment counts as debt |
| Closing risk | Lower | Depends on HELOC lender consent |
| Best fit | Big cash need, large balance, simple file | Small balance, large equity, a line you want to keep |
Worked Scenarios in Percentages
These are modeled assumptions, not market data. Every figure is a share of the home’s appraised value.
Scenario A: the HELOC stays open. The existing first mortgage balance is 50% of value. The HELOC has a limit of 20% of value, and you’ve drawn 5%. The ceiling for new first plus full HELOC limit is 80%. Subtract the 20% limit and the new FHA loan can reach 60% at most. The old first is 50%, so the room for cash is about 10% of value, before closing costs and the financed upfront premium take their share. The drawn balance is irrelevant here. The limit is what counts.
Scenario B: the HELOC is paid off. Same home, same first mortgage. The new loan now covers the old first at 50% plus the 5% drawn on the HELOC, so 55%. The ceiling applies to the new first alone at 80%. That leaves about 25% of value as potential cash, again before costs and premium. You get more cash because you closed the line, even though you paid it off from the proceeds.
Scenario C: a zero-balance line. Say the first mortgage is 50% of value and the HELOC has a 20% limit, with nothing drawn. If the line stays, the cap math is the same as Scenario A. You gain nothing by leaving it open at closing. If you close it, you get back that 20% of room. Many borrowers with an unused line are surprised that closing it is what unlocks their cash.
In all three, the appraisal sets the number everything else is measured against. A lower appraisal shrinks the 80% ceiling and the cash with it.
Where the General Rule Breaks
The 80% rule and the pay-off-or-subordinate fork cover most files. A few situations bend them.
FHA Streamline refinance. This is a different product. It refinances an existing FHA loan with no cash out, usually without an appraisal. Older HUD text allowed an existing HELOC to remain if it was resubordinated, but you cannot add a new subordinate lien on a streamline. Do not carry those allowances over to a cash-out. They are not the same rules.
Rate-and-term versus cash-out. An FHA rate-and-term refinance with an appraisal can reach 97.75% on a principal residence occupied for the previous twelve months. That is far higher than the cash-out cap. Whether paying off a HELOC lets you stay in rate-and-term depends on the line’s history and current handbook wording. Get that answer before you plan around it.
Homes owned free and clear. A home with no mortgage can still be refinanced as a cash-out. The loan simply pays out equity with no first mortgage to retire.
Inherited homes. Confirm with the lender before relying on any special treatment an heir may have received, since it may not carry over if the heir rents the home out.
Down-payment-assistance or other HUD-held junior liens. These need their own subordination request. That adds another party and step to the file.
Rentals and second homes. Standard FHA cash-out is for a principal residence. Occupancy decides the leverage, so a home you don’t live in generally isn’t eligible.
Hawaiian Home Lands Section 247 loans. These were excluded from the 80% cut. They are rare, but they show the cap is not universal.
Veterans. If you’re a veteran, a different program may reach higher leverage.
Common Mistakes
- Assuming a zero balance means no lien. The line is still recorded. Its lender still has to consent if it stays, and its limit still counts.
- Holding only the FHA loan to 80%. The cap is combined. The HELOC is inside it.
- Using old numbers. Caps of 85% or 95% belong to earlier years of the program.
- Assuming your new lender can make the HELOC lender cooperate. It can’t.
- Starting the subordination request late. The closing depends on it.
- Mixing streamline and cash-out rules. The products have different limits and different treatment of second liens.
- Forgetting that the upfront premium is financed. The 1.75% is added to the base loan, and that growth uses some of your room under the cap.
How the Decision Looks in Practice
Start with how much cash you need. Then check what the HELOC does to that number.
| Your situation | Likely best path |
|---|---|
| Large cash need, HELOC heavily drawn | Pay it off, take what’s left |
| Large cash need, HELOC barely used | Close the line to free up room |
| Modest cash need, big equity | Subordinate and keep the line, if its lender agrees |
| Line nearly maxed, little equity | Payoff is the realistic route, and cash may be thin |
| HELOC lender won’t consent | Pay it off, or take less cash |
This is one of those cases where the answer might differ by borrower, and the lender’s consent is the swing factor. Run both versions of the numbers before you pick.
If It Doesn’t Work
Some files don’t fit under the 80% ceiling once the HELOC and costs are counted. You have options.
- Pay down the line first. Bring the balance and limit down, then reapply.
- Take less cash. A smaller cash-out leaves more room under the cap.
- Close the HELOC separately. Pay it off with your own funds and refinance without it.
- Leave the HELOC alone and skip the refinance. If the cash need is small, you may already have the funds in the line.
- Compare other FHA structures. A rate-and-term or streamline may fit if cash isn’t the point.
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. Lendmire is a mortgage broker, so it arranges the loan through wholesale lenders and does not make the credit decision. The lender completes the full file review.
Frequently Asked Questions
Can I keep my HELOC when I do an FHA cash-out refinance?
Sometimes. Your HELOC lender must sign a subordination agreement so the new FHA loan sits in first position, and it can refuse. The full credit limit also counts toward the 80% combined cap. If the agreement doesn’t happen, the line typically has to be paid off.
Does a HELOC with a zero balance still count?
Yes. The lien remains recorded until the line is formally closed, and its limit can count toward combined leverage if it stays open. Closing it with a written request to the HELOC lender frees that room.
Will the HELOC payoff count as cash-out?
It depends on how the line was used and the handbook wording in effect. Legacy HUD text was more lenient for no-cash-out refinances. Because the current rule needs confirming, don’t assume a payoff keeps you in a rate-and-term refinance. A lender can confirm before you apply.
Does my HELOC payment count in my ratios?
If the line stays open, the required payment generally counts as debt. If it’s paid off at closing, that debt drops out. Ratios start at 31/43 and reach 40/50 with documented factors, and the automated finding decides most files.
Can I use a streamline instead?
Only if you have an existing FHA loan and don’t need cash. A streamline has no cash-out, and it follows different rules for second liens. It can’t give you equity as cash, and a new subordinate lien can’t be added through it.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Mortgagee Letter 2019-11
3. HUD Handbook 4000.1 Overview
4. Consumer Financial Protection Bureau
5. HUD Handbook 4155.1, Chapter 3 Section B (legacy, superseded)
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA Cash-Out Refinance Minimum Credit Score Requirements · Best FHA Cash-Out Refinance Program With FHA Cash Reserve Requirements · Can an FHA Cash-Out Refinance Pay Out an Ex After Divorce?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.