Does the FHA offer home equity loans?

The right home equity loan can help you unlock new possibilities, just like how the right type of mortgage can unlock homeownership. If you’ve used an FHA mortgage to buy your home, it’s natural to wonder whether you can use it to borrow against your equity, too. 

The truth is that FHA home equity loans don’t exist. The Federal Housing Administration (FHA) does not work with lenders to offer home equity loans or home equity lines of credit (HELOCs). Even so, you still have plenty of other options to borrow against the equity in your home while you have an FHA loan. We’ll go over several options like conventional home equity loans, FHA 203(k) loans, and FHA cash-out refinances to explain how they work and what to consider when you apply.

Can you get a home equity loan or HELOC with an FHA mortgage?

Yes, it’s possible to get a conventional home equity loan or HELOC from a separate lender if you qualify, even if you already have an FHA mortgage. Home equity loan and HELOC lenders set their own requirements, including how they evaluate your credit, income, and equity. 

The FHA works with lenders to offer several types of mortgages: purchase mortgages, 203(k) renovation loans, cash-out refinances, and Home Equity Conversion Mortgages (HECMs), also known as reverse mortgages. The FHA does not partner with lenders to offer home equity loans or home equity lines of credit.

How to tap your equity with an FHA mortgage

The FHA doesn't offer a separate home equity loan or HELOC, but you’re still free to apply for a conventional home equity loan or one of the FHA's programs designed for a specific purpose. Here’s how they compare:

A conventional HELOC or home equity loan (second mortgage)

Home equity loans and HELOCs are sometimes called “second mortgages” because they’re attached to your home with a separate lien from your first mortgage—in this case, from your FHA mortgage. Lien position sets repayment order when the home is sold. The primary mortgage lender typically holds the first lien. The home equity loan or HELOC lender holds the second lien. When the home is sold, the primary lienholder gets repaid first. Then the second lienholder gets repaid. Then you would get whatever money is left.

An FHA cash-out refinance

An FHA cash-out refinance replaces your existing mortgage with a new FHA mortgage that has a larger balance. You receive the difference in cash, and you can spend that money how you wish. You can only borrow up to 80% of your home’s value with an FHA cash-out refi, minus the balance of your current mortgage. That means you won’t even be eligible for an FHA cash-out refi until you have at least 20% equity in your home, and, ideally, more than that.  

A cash-out refinance usually also changes your mortgage’s rate and term length. That means your monthly payment will change, along with the total amount you pay over time. 

An FHA 203(k) loan for home improvements

If you’re doing renovations, an FHA 203(k) loan lets you combine home improvement costs with an FHA mortgage. The Standard 203(k) is designed for more extensive rehabilitation, while the Limited 203(k) is intended for smaller improvements of $75,000 or less. If you’re opting for the Standard 203(k), you’ll need to work with a consultant to oversee the renovation.

An FHA 203(k) loan lets you borrow far more in total: up to 110% of the expected value after you get the work done, compared to just 80% of your home’s current value, as with an FHA cash-out refi or a home equity loan or HELOC. That makes it a lot more accessible if you need to borrow a large amount, or if you just don’t have much equity built up in your home yet. 

A HECM reverse mortgage if you’re 62 or older

The home equity conversion mortgage, or HECM, is an FHA-backed reverse mortgage for homeowners 62 and older. An HECM lets you access part of your home equity without making traditional monthly mortgage payments. You have three choices for how to access your equity: you can get a lump sum payment, open a line of credit, or opt for a monthly payment to help supplement your income. If you’re still paying off an FHA mortgage, you’ll need to use some of your HECM funds to pay off this debt first, so you won’t get quite as much back in return.

The loan balance generally becomes due when you (or, in certain cases, your surviving spouse) move out of the home, sell it, or pass away. 

Getting a home equity loan with an FHA mortgage and lower credit

It can be difficult to qualify for a home equity loan with a low credit score, whether you have an FHA mortgage or not. But it’s a common scenario if you have an FHA loan, since those types of mortgages are often designed to help unlock homeownership for people with lower credit scores, and good credit can take time to build. 

Many lenders offer home equity loans. Each one sets its own qualification requirements and evaluates your overall financial profile slightly differently. Some lenders may be more willing than others to overlook a lower credit score. Even so, a low credit score typically means you’ll pay a higher rate or receive a smaller loan amount, depending on your other financial details. 

You can apply for a HELOC from Achieve Loans with fair credit.

A conventional home equity option from Achieve Loans

If you want to keep your existing FHA mortgage in place,Achieve Loans offers a conventional fixed-rate home equity line of credit. It isn't an FHA product, and taking out the loan doesn't replace your existing FHA mortgage.

A HELOC with Achieve Loans lets you borrow against your home, with the option to repay and re-borrow as often as you like, up to your credit limit. Find out if you qualify.