The Quick Read: An FHA cash-out refinance suits a homeowner who wants to replace the current mortgage and take equity in one new loan. A home equity loan suits someone who wants to keep the first mortgage as it is and borrow a smaller amount on top. In DC, the government recording charges often favor the refinance when the paperwork is filed correctly, because the tax can be limited to new debt. That is not a universal result. Your first-mortgage terms, the size of the cash you need, and how long you will keep the loan all weigh on the decision.
Side-by-Side
Here is how the two options compare on the points that shape a decision. The recording row describes DC only. Other places tax mortgages differently.
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.
| Factor | FHA Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Loan structure | New first mortgage replaces the old one | Second loan behind your first mortgage |
| Maximum financing | Up to 80% LTV | Set by each lender |
| Credit floor | Starts at 580 decision score | Set by each lender |
| Mortgage insurance | Upfront and annual FHA premiums | No FHA premium |
| Occupancy | Principal residence, owned 12 months | Lender-set, varies |
| Documentation | Full file, appraisal, FHA ratios | Full file, lender-set standards |
| Your existing first mortgage | Paid off and replaced | Stays in place |
| DC recording | Tax may be limited to new debt | Typically taxed on the full new loan |
LTV means loan-to-value: your total loan balance divided by the home’s appraised value. Every figure here is subject to lender guidelines and a full file review. None of it is a commitment to lend.
Key Takeaways
- An FHA cash-out replaces your whole mortgage. A home equity loan adds a second one beside it.
- The FHA premium applies to the entire new balance, not just the cash you pull out.
- In DC, a properly documented refinance can reduce the recordation tax. A new second lien typically gets no such credit.
- The better choice depends on whether your current first mortgage is worth keeping.
What DC Charges to Record a Loan
DC splits recording costs into separate pieces, and mixing them up can make quotes confusing. Think of three charges.
The first is a flat recording fee for filing the deed of trust. The Recorder of Deeds sets it, and it is the same whether the loan is large or small. The second is the recordation tax on the security instrument, which is the document that pledges your home as collateral. The tax is a percentage of the taxable amount. The third is transfer tax, which applies to sales and deed transfers. Per Ballard Spahr’s summary of DMV-area taxes, mortgages and deeds of trust in DC are subject only to the recordation tax, with no transfer tax.
How big is the recordation tax? DC’s Office of Tax and Revenue says a security instrument is generally taxed at 1.45%. A lower rate applies in some residential cases. That lower rate is tied to the property’s transfer value, not to your loan size. Many people read it as a loan cutoff. It is not.
How the Recording Math Differs
A cash-out refinance and a home equity loan start from the same lien, but they get different tax treatment because of what they replace.
A cash-out refinance pays off your old first mortgage. Tax applies to the outstanding balance of the existing debt only when a claim of credit or exemption is not properly substantiated. In plain words, if you document the refinance correctly on the required form, the old debt is credited. The taxable base can shrink to the increase in principal. If the paperwork is missing or wrong, the credit can be lost.
A home equity loan is different. It does not pay off any existing debt. It is a brand-new lien. Typically, the full face amount becomes the taxable base. That is the usual reading of how the tax is built for a closed-end second mortgage, though it is not spelled out in the sources above. Ask the title agent to confirm it before you commit.
Two other cautions apply.
- Other places work differently. Virginia generally taxes only the increase in principal on a refinance. Some states tax mortgages in other ways. Texas adds its own state rules for cash-out loans. Never carry a DC result over to another address.
- Later changes can count. A limit increase or a loan modification can be treated as a new refinance for tax purposes. Ask about this before you sign anything that changes an existing loan.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
When FHA Cash-Out Is the Better Fit
Your first mortgage has stopped serving you. Perhaps the term is awkward, the monthly structure no longer fits, or the loan is a different type than you want. A refinance fixes the whole thing at once. You end up with one housing payment instead of two obligations.
You need a large amount of cash relative to your equity. The FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number. A lender-set home equity loan can stop short of that, because each lender picks its own combined limit. The FTC notes that many lenders prefer you borrow no more than 80 percent of the equity in your home. That is a lender preference, not a rule. It does show how a second lien can reach less.
Your credit or income file is tighter than a second-lien lender wants. FHA programs start at a 580 decision score on the wholesale lines Lendmire works with. The base ratio pair is 31/43 for housing and total debt. Documented compensating factors can stretch that toward 40/50 at the top tier, and the automated finding governs most files. A second-lien lender may set a higher floor. That is a lender choice, so compare more than one.
You are comfortable with the FHA insurance structure. The upfront premium is 1.75% of the base loan, and it can be 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 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years. That cost is real, and it is the price of the program’s flexibility.
The DC angle: if the refinance is properly documented, the recordation tax base can be limited to the increase in principal rather than the whole balance. That can narrow the recording gap against a second lien, though the FHA premium and other closing costs still count. The result varies by file.
When a Home Equity Loan Is the Better Fit
A home equity loan wins when the first mortgage is the best thing you own. Keeping it can matter more than any recording line.
Your existing first mortgage has terms you want to keep. A refinance resets the entire balance to new terms. A home equity loan touches only the new money. If your current loan is working, replacing it to reach a few extra dollars of equity can cost more than it saves.
You need a smaller amount. The FHA upfront premium applies to the whole new base loan. When the cash need is small compared with the balance, you pay premium on a large amount to access a small one. A second lien charges its costs on the amount you actually borrow. The CFPB says a cash-out refinance may be more or less expensive than a HELOC, depending on the terms. The same logic applies to a fixed home equity loan.
You want a lump sum with a defined structure. The CFPB describes a home equity loan as a specific amount of money borrowed against your home’s equity, paid out as a lump sum. If you know the exact number, that fits.
You have strong credit and healthy equity. Those borrowers often have the most room with lender-set second-lien standards. FHA’s flexibility matters less when you do not need it.
The catch is the tax and the extra payment. In DC, a new second lien typically has no prior debt to credit against, so the recordation tax likely lands on the full face amount. Also, you now carry two housing obligations. The CFPB reminds borrowers that a second mortgage adds to your overall debt burden.
A Break-Even Way to Think About It
You do not need a spreadsheet full of dollar figures to see the shape of this. Use three questions.
1. How big is the cash need compared with your current balance? The smaller it is, the more a home equity loan tends to win, because the refinance spreads its costs over the whole balance.
2. How much do you value your first mortgage’s current terms? The more you value them, the more a second lien makes sense.
3. How long will you keep the new loan? Upfront costs, including FHA’s financed premium and recording charges, are spread over time. A short hold favors the option with lower upfront costs. A long hold gives a refinance more years to earn back what it cost.
Picture a homeowner whose first mortgage sits at about half the home’s value, with a modest cash need and plans to stay a long time. A second lien keeps the original terms and borrows only what is needed. Now picture a homeowner whose loan is near the top of what the home supports, who wants substantial cash and a clean restart. The FHA cash-out reaches 80% LTV, which may be the only path to the number. Same question, different answers.
Ask each lender for a Loan Estimate and compare the full terms side by side. Recording is one line on that form. It is rarely the whole story.
Exceptions That Change the Answer
A few situations flip the standard logic.
- You bought within the past year. A standard FHA cash-out needs 12 months of ownership and occupancy before the case number. A recent purchase generally cannot use it.
- The home is not your principal residence. FHA programs here are for owner-occupied homes. Occupancy decides the leverage, so a second home or a property you do not live in follows different rules.
- You hold an FHA loan with a partial claim. A partial claim is a subordinate note that sits behind your FHA mortgage. HUD says amounts owed on it become due when FHA insurance ends voluntarily. Refinancing out of FHA can trigger that, so ask your servicer.
- You are thinking of a no-cash-out FHA refinance. That is a different product. HUD defines a Simple Refinance as a no cash-out refinance where all proceeds pay the existing FHA lien and transaction costs.
- You want a second lien behind an existing FHA first loan. Whether that works depends on the lender and the first loan’s rules. Get a clear answer before you apply.
- The recording paperwork is incomplete. If the refinance credit is not substantiated, the tax can apply to the full balance. A missed form can cost more than a quoted fee difference.
Questions to Ask Before You Sign
Take these to the lender and the title agent. They are the ones that surface surprises.
- Will the recordation tax apply to the full balance or only the increase?
- Who files the DC form that claims the refinance credit, and when?
- What are the flat recording fee and the recordation tax on my Loan Estimate, each on its own line?
- Does the second lien in your quote need a subordination or combined-limit review?
- How is the FHA upfront premium shown, and is it financed into the balance?
- What does the total cost look like if I keep this loan a short time versus a long time?
Your Loan Estimate and Closing Disclosure are the documents that should answer these in writing. If a number differs between them, ask why.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off the old one and gives you part of your equity as cash.
Home equity loan: A lump-sum second loan secured by your home, paid on top of your first mortgage.
Combined loan-to-value (CLTV): Your first mortgage plus any second loans, divided by the home’s appraised value. HUD defines it with the base loan amount plus the outstanding balance of all subordinate mortgages.
Recordation tax: A DC tax on recording a document, such as a deed of trust, that secures a loan.
Mortgage insurance premium: The FHA’s upfront and annual charges that protect the lender and make FHA’s flexible standards possible.
The Balanced Verdict
Neither option wins on every file. Choose the FHA cash-out when you want to replace the old loan, need meaningful equity, or want FHA’s flexible credit and ratio standards. Expect the premium on the whole balance, and expect to keep the refinance paperwork tidy for DC’s recordation tax. Choose a home equity loan when your first mortgage has terms worth keeping and you need a smaller, defined amount. Expect two obligations and, in DC, a recording tax that likely covers the full new loan.
HUD’s handbook page lists Handbook 4000.1 as the rulebook for FHA programs, and individual lenders can add their own standards. Compare more than one Loan Estimate before choosing.
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.
Frequently Asked Questions
Does an FHA cash-out refinance owe DC recordation tax?
Yes, the new deed of trust is a security instrument, but the taxable amount can be limited. The existing debt is credited when the claim is properly substantiated, so the tax may fall mainly on new principal. If the form is missing or incomplete, the tax can apply to the full balance. Confirm with your title agent.
Does a home equity loan owe DC recordation tax?
Typically yes, on the full amount of the new loan. A second lien does not pay off prior debt, so there is usually nothing to credit against. That is the usual reading for a closed-end second mortgage, though it is not stated outright in the sources above. The title agent can confirm how it is treated on your file.
Is there a DC transfer tax on either one?
No, not on a mortgage or deed of trust. Transfer tax applies to sales and deed transfers. Per Ballard Spahr, mortgages and deeds of trust in DC are subject only to the recordation tax. Your closing disclosure will show which charges apply.
Can I borrow more with an FHA cash-out than with a home equity loan?
Often, but not always. FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number. A home equity loan’s combined limit is set by each lender, and some stop below that. The right answer depends on the lender and your equity.
Is FHA mortgage insurance a reason to skip the cash-out?
Sometimes. The upfront premium is 1.75% of the base loan and can be financed. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, amount and LTV. If you need only a small amount of cash, paying premium on the whole balance can tip the choice toward a second lien. If you need a large amount, the premium is the cost of reaching it.
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 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. Ballard Spahr – Navigating transfer tax and mortgage recordation tax in the DMV area
2. DC OTR – Tax Notice 2023-04, Taxation of Refinances and Modifications
3. FTC – Home equity loans and home equity lines of credit
4. CFPB
5. CFPB – Home equity loan vs HELOC
6. CFPB – Second mortgage / junior lien
7. HUD – Handbook 4000.1 Glossary
8. HUD – Housing Handbooks page (Handbook 4000.1)
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: How to Get an FHA Cash-Out on an Existing FHA Loan for Any Purpose · How an FHA Cash-Out Works When Fees Are Financed Into the Loan · How a VA Cash-Out Charges the Funding Fee After an FHA Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.