Cash out refi allowed on a house that already has a HELOC?

Question

If I have a house that is paid off and has a HELOC on it, would I be allowed to do a cash out refinance on that same house?

Since there is no primary mortgage, I think the HELOC would be in 1st lien postion and the new cash out refinance would be in 2nd lien position.

Vinay Kolluru · Answer

Yes, still in draw period for HELOC. HELOC also has a $0 balance. I'm trying to set it up where I have maxed out the equity I can tap into so I can invest. I want to sort of set myself up as my own bank.

Vinay Kolluru · Answer

Thanks, Patrick. I most likely wouldn't want to do a cash out if it means closing the HELOC. Have you heard of any situation where both a cash out and HELOC are on the same property, given there is no primary mortgage?

Patrick M Nichols · Answer

The new mortgagor would likely condition the financing on the closure of the HELOC and release of their lien. You might even get a better rate with the cash-out than you have with the HELOC.

However, yes, the general rule is that first in time to record is first in priority for liens, unless the senior lienholder agrees to subordinate their lien to a more recently recorded lien.

Vinay Kolluru · Answer

Great to hear someone else is doing the same thing! Very helpful advice from you - much appreciated.

Chris Mason · Answer

I've done a bunch of these. You have to get the HELOC lender to agree to subordinate, which most will. Most HELOC lenders will want a full credit package and charge a fee, basically they are going to fully re-underwrite the HELOC. Which might take a month. Or it might take two. I generally do not lock the rate on the 1st position mortgage until the HELOC lender process is done.

Assuming you want the same rate on the new 1st position mortgage that you'd have if it didn't have the HELOC, these are the discount points you will be rolling into your loan balance, assuming you're getting a vanilla FNMA loan - 0.375 points off the bat, plus the other adjusters below:

https://www.fanniemae.com/content/pricing/llpa-matrix.pdf

Vinay Kolluru · Answer

Thanks, Scott. My question was more if I could have both a HELOC and a cash out refi on the same house, given that the primary mortgage was paid down.

Scott Anderson · Answer

Both a cash out refi and the Heloc are set based off current equity.

Use whichever allows you to tap more equity %.

My Heloc is 90% equity. Had I done a cash out refi the same bank would have only done 80% with a refi fee.

Only a foolish lender would allow more equity to be used. If you need 100% equity, sell the house.

Patrick M Nichols · Answer

I have not. I suppose it's possible to finder a lender that would do it, but it's riskier so the rates would naturally be higher. Are you still in your draw period for that HELOC?

Cash out refi allowed on a house that already has a HELOC?

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