A second mortgage can completely change an FHA refinance calculation.
Whether a junior lien is paid off, remains subordinate, was used to acquire or improve the home, or was recently created for cash can affect refinance classification and maximum financing.
Keep and subordinate
Eligible existing subordinate financing may sometimes remain in place when the lienholder agrees to subordinate to the new FHA first mortgage and the transaction satisfies FHA's combined financing and underwriting requirements.
Paying off a second
Do not assume every second mortgage can simply be rolled into a Rate and Term refinance. FHA distinguishes eligible mortgage debt and transaction purposes. The origination date and use of the junior-lien proceeds can matter.
HELOCs
A HELOC requires review of its balance, draw history, lien position and use of funds. A recently drawn HELOC used for unrelated cash purposes can produce a different result from longstanding acquisition financing.
DPA seconds
Down-payment-assistance liens have their own provider rules. Even when FHA permits the refinance, the DPA provider may require payoff or may permit resubordination. Always review the actual DPA note/deed and current program policy.
Official FHA policy baseline
Primary source: HUD/FHA Single Family Housing Policy Handbook 4000.1, Update 18, revised August 12, 2026. FHA identifies Cash-Out, Rate and Term, Simple and Streamline as refinance types. Section 203(k) rehabilitation refinances remain in Mortgage Navigator's separate future renovation-loan section.