September 22, 2021

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FHA Refinance Loans and HELOC: A Reader Question

099A reader asks, “We have an old home built in 1924 in Vallejo, CA. We took a HELOC on the property in 2006 when the home appraised at around $450000. The loan was structured as 10 yrs. interest only payments, which will become principal and interest at the then current HELOC rate in Oct. of 2016.

“The home is now worth about half of its prior value, and we are worried about what the HELOC rate will become in 2016. We still owe $244,000 and a house around the corner sold for $235,000. Is there an FHA loan we can qualify for to help get out from under this situation? We have excellent credit(over 760 each)and income around $120000 annually, with no debt other than this HELOC situation.”

FHA loan rules for refinancing loans do address subordinate liens and HELOC issues. A 2011 FHA Mortgagee Letter clarifying the rules for subordinate liens states:

“If there is an existing subordinate lien on the property, such as a Home Equity Line of Credit (HELOC), the entire lien must be subordinated at refinance. For the calculation of the Combined Loan to Value (CLTV) ratio, the mortgagee must use the maximum accessible credit limit of the existing subordinate lien.”

If an FHA refinance loan is still the route the borrower wants to take (knowing the above FHA rule applies), he or she will need to work with the lender regarding the specific circumstances of the refinancing–there are many issues that can affect loan approval or denial. Lender standards will definitely play a part in the process; FHA loan rules aren’t the only ones that need to be considered when applying.

It’s easy to forget that FHA home loans and refinancing loans are not issued only under FHA rules–the financial institution you’re applying to also has a set of standards and regulations that must be followed in addition to the FHA loan rules, minimum standards, etc. FHA minimums are just that, and a lender may require higher FICO scores, ask for an appraisal and credit check where the FHA doesn’t necessarily require one, etc.

Do you have questions about the FHA home loan program? Ask us in the comments section.


Joe Wallace - Staff Writer

By Joe Wallace

June 25, 2014

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for for (8) years and is currently the Associate Editor for

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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