How to Refinance an Existing FHA Loan and a HELOC Into One FHA Cash-Out

The Quick Read: You can replace an existing FHA loan and a HELOC with one new FHA cash-out loan, but only while you still live in the home as your primary residence. The new loan pays off both old liens, sets one new balance capped by the appraised value, and carries FHA mortgage insurance on the entire amount. Once the home becomes a rental, the FHA route closes and a DSCR cash-out is the usual replacement.

• FHA cash-out is an owner-occupant product. It does not work on a pure rental.
• The new loan must cover the FHA payoff, the HELOC payoff, closing costs, and any financed insurance. What is left over is your cash.
• A HELOC drawn for anything other than the purchase or repairs generally pushes the deal into cash-out territory, with a new appraisal and a lower leverage cap.
• Mortgage insurance is the price of staying in FHA, and it applies to the whole new balance.
• If the property is now a rental, a DSCR cash-out qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.

Key Terms Defined

FHA cash-out refinance: A new government-insured mortgage, larger than the old one, that pays off the old loan and hands you the difference in cash.

HELOC: A home equity line of credit, a revolving credit line secured by your home. When a first mortgage exists, it sits behind that loan as a second lien.

CLTV (combined loan-to-value): The total of every loan secured by the home, divided by the home’s appraised value.

Seasoning: The waiting period a lender requires, such as time living in the home or time making on-time payments, before you can refinance.

DSCR: Debt service coverage ratio, which compares a rental’s income to its full monthly obligation of principal, interest, taxes, insurance, and any HOA dues (PITIA).

How Does the FHA Consolidation Actually Work?

The new FHA loan pays off the old FHA first mortgage and the HELOC at closing, so you end up with one note instead of two. The leftover money after payoffs and costs comes to you as cash. The catch is that FHA financing is built for principal residences. It is not offered for investment properties, second homes, or vacation homes, as FHA.com’s occupancy explainer notes.

Here is the sequence, start to finish:

1. Confirm eligibility. You must live in the home as your primary residence, be on title, and have a clean payment history. Expect a lender to look for roughly a year of occupancy and on-time payments.

2. Pull both payoffs. Request a payoff statement for the FHA loan and one for the HELOC. Also gather the HELOC draw history, because recent draws change how the payoff is treated.

3. Order the appraisal. An FHA cash-out needs a new FHA appraisal. The value sets your leverage ceiling.

4. Size the loan. The new balance has to cover the FHA payoff, the HELOC payoff, closing costs, and the financed insurance premium. Whatever remains under the cap is your cash.

5. Underwrite the borrower. The lender reviews your income, credit, and the new payment, including mortgage insurance. Because it is an owner-occupant loan, your personal income carries the file. Rent does not.

6. Close and release the liens. The title company pays off both lenders. The HELOC should be closed out and its lien released, so no second lien remains behind the new loan.

What the leverage cap does to your math

HUD cut the maximum LTV and CLTV on FHA cash-out refinances from 85% to 80%, and its press release says the change aligned FHA with other cash-out maximums. That 80% is HUD’s policy ceiling on an owner-occupied primary residence. It is a government-program figure, not a figure from the investor network Lendmire works with.

The cap is measured against the property’s adjusted value. It also applies to combined debt, not just the first mortgage. The summary of the guidance confirms it covers both LTV and CLTV.

Why the HELOC usually makes it a cash-out

Older HUD handbook language allowed a no-cash-out refinance to absorb only limited junior-lien debt. A HELOC drawn for something other than the purchase or repairs generally moves you into the cash-out box. That means the appraisal, the lower cap, and the tighter occupancy test all apply. The current handbook wording is worth confirming with your lender, since treatment can vary by file.

If you keep the HELOC open

Any second lien left in place uses up room under the combined cap. Keeping it also needs the HELOC lender’s cooperation. Whether the lender counts the full credit limit or only the drawn balance is lender-specific, so ask before you plan around an open line.

Where Does the Rule Break?

The general rule is simple: no occupancy, no FHA cash-out. A few edge cases bend it, and a few that look like they should do not.

The 2-4 unit house hack. If you live in one unit of a duplex, triplex, or fourplex, the property can still qualify as your primary residence. The other units produce rent, but you are the occupant-borrower. Your income and credit carry the file.

The home you moved out of. The occupancy test looks backward. A home you have rented out restarts the clock, and AirDNA’s investor guidance makes the same point about living in the home for a year before converting it to a rental.

Tenant income or a co-borrower. Tenant income does not fix an occupancy gap. A non-occupant co-borrower is generally not a workaround on a cash-out either, though the details depend on the lender.

LLC title. FHA is a loan to an individual. If the property sits in an entity, the FHA path is generally closed.

Inherited homes. Some inherited-property situations get special occupancy treatment. Those are narrow, file-specific, and worth a direct conversation with the lender.

Special programs. Certain narrow loan types, such as Hawaiian Homelands mortgages, are exempt from the 80% change.

What Does the HELOC-to-Fixed Trade Look Like?

A HELOC is usually a variable-pricing product with a draw period followed by repayment. The CFPB explains that draw periods can run as long as 10 years and that payments are often significantly higher once repayment starts. Folding the line into one fixed first mortgage removes that reset.

The tradeoff runs the other way, too. If your old FHA loan has favorable terms, you give those up when you refinance. You also take on mortgage insurance on the entire new balance. If you used the HELOC to pay off unsecured debt, that debt is now secured by your home, and refinancing the line into a new first mortgage keeps it secured as well.

Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.

What If the Home Is Now a Rental?

Then the FHA route is closed, and the practical move is a DSCR cash-out. DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines, so your traditional employment income is not the centerpiece.

Here is how the network handles the pieces an FHA cash-out would have handled:

• Leverage: A cash-out on a standard rental tops out around 75% LTV across most of the network. A short-term-rental cash-out generally tops out at 70%.
• Seasoning: About six months of ownership is the common expectation.
• Coverage: 1.00 is where select programs start, and stronger ratios open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
• Credit: A 620 floor exists in parts of the network, most programs want around 660, and 700 or better unlocks the strongest leverage tiers.
• Loan size: Standard programs go up to $3,000,000, and smaller balances are available through select lenders. Above $2,500,000 the network generally holds to 30-year fixed structures.
• Reserves: Many files want around six months of PITIA. Conservative files at modest leverage can see reserves waived, and larger loans typically step up to about nine months. This varies by lender and transaction.
• Structure: The spine is the 30-year fixed. Longer terms and interest-only periods are available through select lenders.
• Title: Holding the property in an LLC works on many DSCR files, subject to lender program eligibility.

Clearing 1.00 is not the same as positive cash flow. The calculation compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside it. A larger equity cushion can lift the ratio by shrinking the payment, but it never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.

Some properties are not offered at all. Manufactured homes (single- and double-wide), log homes, and barndominiums fall outside the network’s DSCR programs.

Lendmire’s complete DSCR loans guide walks through how those pieces fit together.

What About Keeping a HELOC on the Rental Instead?

A standalone line can work as an alternative to a cash-out when you want to keep the first mortgage in place. On an investment property, the network’s equity lines top out at 70% CLTV, with a minimum credit score of 700 and a maximum line of $500,000. There is no tier above that on an investment line. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

The structure matters. Investment lines run a five-year interest-only draw followed by a 25-year repayment period. Pricing floats through both periods and never converts to fixed. Lines at or below $500,000 ordinarily run an automated valuation instead of a traditional appraisal. The line must be held in an individual’s name or an inter vivos revocable living trust, so a property already deeded to an LLC needs a vesting change or a DSCR cash-out instead.

This HELOC product is available only in Lendmire’s 16 full-service states, which is narrower than the 41-market DSCR footprint. Every figure is subject to lender guidelines and full file review.

Which Path Fits Your Situation?

Two questions sort most files. First, does the owner still live there? Second, how much total debt would the new loan carry compared to value? If the first answer is yes and the second lands under the cap, FHA is a real option. If the first answer is no, DSCR is the path.

Lendmire’s piece Keeping the First Lien vs Rolling Both Into One Cash-Out Refinance goes deeper on that second question.

If you are weighing a home equity line against a cash-out refinance and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals. Reach the team at 828-256-2183 or request a quote.

A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.

About Lendmire

Lendmire, NMLS# 2371349, is a mortgage brokerage that arranges home equity lines of credit through wholesale lending partners in its 16 full-service states. Lines on primary residences, second homes and investment properties are each reviewed individually by the lender under the program’s occupancy, credit and combined-loan-to-value guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. FHA.com occupancy article

2. HUD Archives press release

3. Consumer Finance Monitor summary of the HUD cash-out guidance

4. AirDNA: FHA loan for investment property

5. CFPB: What is a HELOC