The Quick Read: The lender replaces your first mortgage and your home equity line of credit (HELOC) with one new FHA first mortgage, then tests whether you, the home, and your payment history support it. Four things decide the outcome: how long you have owned and lived in the home, your payment record on both loans, your equity after an appraisal, and your debt ratios. A HELOC whose draw period has ended usually helps the ratio math, because its jumped payment disappears when the line is paid off and closed.
Key Takeaways
- An FHA cash-out refinance on a primary residence can pay off a HELOC, including one already in repayment, as long as the new loan fits the equity limit.
- Cash-out reaches 80% loan-to-value on a home you have owned and lived in for 12 months before the case number is assigned. A home owned free and clear can still qualify.
- The old HELOC payment drops out of your debt ratios. The new first mortgage payment and FHA mortgage insurance take its place.
- Late payments on either the first mortgage or the HELOC in the look-back window can stop the file until your history is clean again.
- Subject to lender guidelines and full file review, and not a commitment to lend.
What Happens When a HELOC’s Draw Period Ends
A HELOC has two phases. During the draw period you can borrow, and many people pay only interest. When it ends, borrowing stops and repayment begins. The CFPB explains that the lender may set a schedule to repay the whole balance, often over ten or 20 years. Payments are often significantly higher. In some cases the full balance comes due at once.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 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.
That payment jump is why this topic exists. A homeowner who barely noticed an interest-only line suddenly faces a much larger monthly bill, or a balloon. Rolling the balance into a new first mortgage turns two obligations into one with a long term.
Your own loan agreement controls the exact terms. Pull it out before you do anything else. You want to know the end date of the draw period, what repayment looks like, and whether any early-closure fee applies.
How an FHA Cash-Out Refinance Differs From a HELOC or Second Mortgage
A HELOC is a second lien that sits behind your first mortgage. A cash-out refinance is different. It is one new first mortgage that pays off the old first mortgage, pays off the HELOC, covers costs, and puts any leftover cash in your hands.
In short, the loan is FHA-insured, available only on a home you live in as your primary residence, and arranged by Lendmire, a mortgage broker, through wholesale lenders.
Two features set it apart from a HELOC. First, you get a single balance instead of a revolving line. Second, the loan carries FHA mortgage insurance. Across the wholesale programs that write this loan, the insurance is an upfront premium of 1.75% of the base loan, which is financed, plus an annual premium between 0.15% and 0.75% of the balance. The annual figure depends on term, loan amount and LTV. Those are program facts, not a price quote.
How Lenders Underwrite It, Step by Step
Underwriting is the lender’s review of whether the loan is safe to make and whether it fits the FHA’s rules. Here is the sequence in practice.
1. Eligibility check. Is the home your principal residence? Have you owned and lived in it for the 12 months before the case number? FHA cash-out is not available on second homes or rentals.
2. Payment history review. The lender looks at the record on every mortgage being paid off. That includes the HELOC.
3. Appraisal. An FHA appraiser sets the value. The cash-out cap applies to an “adjusted value,” not simply a number you hope for.
4. Payoff statements. The lender gets current payoff figures for the first mortgage and the HELOC.
5. Loan sizing. The new loan must cover both payoffs, the costs, and any cash to you, while staying at or under 80% of value.
6. Credit, income and ratios. The file runs through automated underwriting or a manual review.
7. Final conditions and closing. The title company closes out the HELOC. You get a short federal right-to-cancel window on a primary residence refinance, and funds are not released until it passes.
Wholesale programs vary in their own overlays. The best program for your situation depends on your credit, equity and documentation, which is why a broker compares several lenders instead of presenting one.
What the Underwriter Checks, and What You Provide
| What is checked | Why | What you supply |
|---|---|---|
| Occupancy and ownership | Cash-out is for primary residences | Proof of residence, deed, mortgage statements |
| Payment history | Shows reliability on both loans | Statements for the first mortgage and HELOC |
| Appraised value | Sets the 80% cap | Access to the home; list of improvements |
| Income | Supports the new payment | Pay stubs, W-2s, tax returns as requested |
| Credit and debts | Drives the ratios and the automated finding | Authorization to pull credit; explanations for any red flags |
| Title and liens | Confirms the new loan is first position | Payoff authorization for the HELOC |
Lenders may ask for more, depending on the file. Self-employed borrowers, for example, usually submit additional income documents.
The HELOC Payment Disappears From Your Ratios
Debt-to-income (DTI) compares your monthly debts to your monthly income. FHA sets two ratios: housing (payment to income) and total debt to income. The base pair is 31/43 with no compensating factors. Documented compensating factors, such as strong reserves or a clean credit record, can stretch the limits as far as 40/50 at the top tier, and the automated finding governs most files.
Here is the before-and-after logic, shown without dollar figures:
| Item | Before | After |
|---|---|---|
| First mortgage payment | Counts | Replaced by the new FHA first mortgage |
| HELOC payment (repayment phase) | Counts, often much larger than during the draw | Gone, because the line is paid off and closed |
| FHA mortgage insurance | Not in the old loan | Added to the new payment |
| Total monthly debts | Two lines plus other debts | One line plus other debts |
Whether the total goes up or down depends on the new loan amount, the term, and the insurance. If the HELOC’s repayment payment was large, replacing it with a long-term first mortgage payment often relieves the debt ratio. If you take significant cash out, the opposite can happen. The lender’s worksheet shows which.
An open but unpaid HELOC is treated differently. An undrawn line left in place may still be counted by some lenders, which is why closing the line at payoff is the usual route.
Where the 80% Equity Rule Comes From
HUD Mortgagee Letter 2019-11 set the maximum loan-to-value and combined loan-to-value on FHA cash-out refinances at 80% of adjusted value. That means you need at least 20% equity left after the new loan. The cap used to be higher. HUD said the change aligned FHA with the maximum cash-out LTV the government-sponsored enterprises allow. The letter was later folded into HUD Handbook 4000.1, the main FHA policy handbook. Confirm current wording with your lender, since handbook text gets revised.
The practical effect: the new loan has to pay off the first mortgage, pay off the HELOC, cover costs, and still fit under 80%. When the appraisal comes in light, there may be little or no cash left over. In a tight case the loan may still pay off both liens but return no cash. In a tighter case it may not fit at all.
Draw-Period Status: Open, Ending, or Already in Repayment
Lenders look at a HELOC differently depending on where it stands.
| HELOC status | What the lender sees | What it means for you |
|---|---|---|
| Still in draw period | Possible recent advances; a line that could be drawn again | Recent advances may matter; the line must be closed at payoff |
| Draw period ending soon | A looming payment jump | The refinance can head off the shock |
| Already in repayment | A larger, amortizing payment or balloon | Payment is already in your ratios; paying it off often helps them |
If the line is in repayment, make sure you have been paying on time. A payment jump you could not handle may already have caused a late payment, and lenders review payment history on every mortgage being paid off.
Cash-Out vs. Rate-and-Term When a HELOC Is Involved
FHA has two refinance types that can pay a HELOC. A rate-and-term refinance can reach 97.75% on a principal residence you occupied for the previous 12 months, but it is limited to paying off existing debts and costs. Under FHA’s no-cash-out rules, recent HELOC advances beyond a small amount, other than for home repairs, generally cannot be rolled into the new loan.
That is why a borrower who drew on the line recently may land in cash-out. Cash-out does not carry that same limit on recent draws. It is also the only way to take money out of the home. This is an explanation of how the program works, not a suggestion to choose cash-out. If you do not need cash and your history fits, the lower-equity-requirement route may suit you better.
If your HELOC was part of a purchase-money transaction, or has not seen advances in a long time, the picture can differ again. Ask the lender how the payoff will be classified.
Keep, Pay Off, or Subordinate the HELOC?
| Option | How it works | Watch for |
|---|---|---|
| Pay off and close | New FHA first pays the line off; title closes it | Lien release; written closure of the line |
| Keep and subordinate | HELOC stays behind the new first; its lender must agree | The CFPB notes the HELOC lender can refuse |
| Pay off but keep open | Rare; leaves a revolving line | Combined LTV must stay within the cap; may not be allowed |
If the HELOC stays, the combined loan-to-value must still meet the 80% cap. The CFPB also notes that your HELOC lender’s approval may be needed to refinance the first mortgage, and the lender can refuse. In that case you may need to pay the HELOC off. Because the payment has already stepped up, most borrowers in this situation choose to pay it off and close the line.
Edge Cases Where the General Rule Breaks
- Under 12 months in the home. Standard cash-out is off the table. A rate-and-term refinance may exist at lower leverage than the 97.75% available after 12 months.
- Inherited homes. Occupancy timing can follow different rules, particularly if the home was never rented. Ask the lender before assuming either way.
- Home listed for sale. Lenders generally require the listing to have expired or been withdrawn before you apply.
- Home owned free and clear. It can still qualify as a cash-out refinance.
- Second home or rental. Occupancy decides the leverage: standard FHA cash-out is for principal residences only.
- Existing FHA loan with no need for cash. The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review, but it gives no cash back and cannot take out a HELOC.
- Veterans. A different program may fit better. Lendmire’s piece on the VA cash-out refinance for a HELOC whose draw period ended covers it.
- Prior forbearance or credit events. HUD sets waiting periods, such as two years from a Chapter 7 discharge and three from a foreclosure. These are HUD rules, not a promise from any one lender.
Why Files Stall
Delays tend to trace back to a handful of causes:
- A late payment in the look-back window. This can block the loan until the record is clean again.
- A light appraisal. The 80% cap leaves no room for the full payoff.
- HELOC lender friction. Payoff demands, lien releases and written closure take paperwork.
- A credit score below the program floor. The wholesale programs Lendmire places FHA loans with start at a 580 decision score.
- High total ratios. The automated finding may refer the file to manual review, where documented compensating factors matter.
- Undisclosed recent draws. Advances show up in the payoff statement.
Each of these has a possible fix. If the cause is a late payment, you may be able to wait it out. If it is a light appraisal, you may adjust the amount of cash you take.
Documents to Gather Before You Apply
- Recent pay stubs, W-2s and tax returns, as requested
- Last statements on the first mortgage and the HELOC
- The HELOC agreement showing draw and repayment terms
- Proof of homeowners insurance
- Photo ID and Social Security number for the credit pull
- Explanations for any past late payments or credit events
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Draw period: The early phase of a HELOC when you can borrow against the line, often paying only interest.
Subordination: An agreement by a HELOC lender to rank behind a new first mortgage instead of being paid off.
Combined loan-to-value (CLTV): All loans secured by the home, added together, divided by the home’s value.
Seasoning: The time you must own, live in, or hold a loan before a refinance is allowed.
Adjusted value: The value FHA uses to apply its cap, which is not simply the raw appraised number.
Your Next Step
The decision in practice comes down to three questions. Do you meet the 12-month occupancy and payment tests? Does your appraised equity leave room under the 80% cap? And do the new payment and FHA mortgage insurance work for your budget?
Frequently Asked Questions
Can an FHA cash-out refinance pay off a HELOC that is already in repayment?
Yes, if the home is your primary residence and the new loan fits under the 80% cap. The lender pays off the first mortgage and the HELOC from the new loan, and title closes the line. Eligibility depends on your payment history, appraisal and ratios, subject to lender guidelines and full file review.
Does the HELOC lender have to agree?
Not if the HELOC is being paid off at closing. The lender provides a payoff statement and later releases its lien. If you want to keep the HELOC, its lender must agree to rank behind the new first mortgage. The CFPB notes the lender can refuse.
Will the old HELOC payment still count against me?
No, if the line is paid off and closed. The payment drops out of the debt ratios, and the new first mortgage payment and mortgage insurance replace it. A line left open may still be counted by some lenders.
What if I owned my home less than 12 months?
Standard FHA cash-out is unavailable. A rate-and-term refinance may be possible at lower leverage than the 97.75% available after a year of occupancy. A broker can check which wholesale lender’s program fits the timing.
Can I get cash back after the HELOC is paid off?
Possibly. After the first mortgage, HELOC and costs are covered, any room left under 80% can come to you as cash. If the appraisal is light, there may be none.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s FHA loan programs page.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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
2. HUD Mortgagee Letter 2019-11
3. HUD press release on FHA cash-out refinance risk
5. CFPB Ask: Does a HELOC affect refinancing
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: Can You Pay Off a PACE Lien With an FHA Cash-Out Refinance? · FHA Cash-Out Refinance Requirements With No Mortgage
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.