You can refinance a mortgage with a HUD Partial Claim, but in most cases the partial claim balance has to be paid off in full from the proceeds of the new loan at closing. Refinancing your FHA-insured mortgage is one of the events that makes the partial claim due and payable, so the lien has to be cleared before a new lender will take first position.1U.S. Department of Housing and Urban Development (HUD). HUD Proposes Updated Requirements for Partial Claim Payoff Statements and Recording Timeframes That means you need enough equity to cover both your existing mortgage balance and the partial claim amount, plus a payment history strong enough for a lender to approve the new loan.
Why the Partial Claim Comes Due at Refinance
A HUD Partial Claim is a zero-interest, no-payment loan from the federal government that your servicer used to bring your mortgage current after you fell behind. The advanced amount was recorded as a subordinate lien on your title, held by HUD, and it sits there quietly until a triggering event occurs: your final mortgage payment, a sale, a title transfer, or a refinance.2U.S. Department of Housing and Urban Development (HUD). FHA’s Loss Mitigation Program
Because no interest accrues, the payoff amount is exactly what was recorded in the original partial claim note. It does not grow over time. When you refinance, though, that fixed balance has to come out of the closing proceeds, because the new lender needs a clean first-lien position and HUD’s lien is in the way.1U.S. Department of Housing and Urban Development (HUD). HUD Proposes Updated Requirements for Partial Claim Payoff Statements and Recording Timeframes
When Subordination Is an Option Instead
Subordination is the alternative to payoff. It means HUD agrees to keep the partial claim in place but moves it behind the new first mortgage. HUD runs a formal subordination request process through its National Servicing Center, and requests can be submitted by email or through the SMART Integrated Portal.3U.S. Department of Housing and Urban Development (HUD). SFH – National Servicing Center
Approval is not guaranteed, and the option is narrow. Some credit-qualifying FHA Streamline Refinance transactions may allow the partial claim to be subordinated under certain conditions. Conventional refinances and cash-out refinances do not qualify; expect to pay the partial claim in full in those cases. If you think subordination might fit your situation, ask your servicer and the FHA Resource Center about it before you get far into the application.
What You Need to Qualify
Payment History
FHA guidelines set a minimum number of on-time payments after loss mitigation before you can qualify for a new FHA loan. For a standard rate-and-term refinance, you generally need to have completed any forbearance or trial payment plan and then made at least three consecutive monthly payments. For an FHA Streamline Refinance, you typically need at least six payments on the mortgage being refinanced. Individual lenders often go further, looking for a full 12 months of on-time payments on all obligations before they will approve the loan.
Equity
The property has to appraise high enough to support paying off both your primary mortgage and the full partial claim. Because the partial claim tacks a fixed dollar amount onto the payoff, your combined loan-to-value ratio is higher than it would be without it. If the appraisal falls short, you either bring cash to closing to cover the gap or the refinance is denied. Cash-out refinances raise the bar further, because you are also increasing the loan balance to take equity out.
How the Refinance Type Changes the Picture
FHA Streamline Refinance
A streamline replaces your existing FHA loan with a new one, often with reduced documentation and no appraisal. You need at least six payments on the current mortgage and a tangible benefit such as a lower rate or lower monthly payment. This is the one refinance path where subordination of the partial claim is potentially on the table, though only for certain qualifying transactions.3U.S. Department of Housing and Urban Development (HUD). SFH – National Servicing Center
Conventional Rate-and-Term Refinance
Moving to a conventional mortgage terminates the FHA-insured loan, which makes the partial claim due in full at closing.1U.S. Department of Housing and Urban Development (HUD). HUD Proposes Updated Requirements for Partial Claim Payoff Statements and Recording Timeframes Conventional loans can eliminate FHA mortgage insurance premiums, but you need enough equity to absorb the partial claim payoff into the new loan while still meeting the lender’s loan-to-value limits.
Cash-Out Refinance
Cash-out refinances require more equity and longer seasoning than rate-and-term refinances. The partial claim must be paid in full from closing proceeds, and subordination is not available. Between the larger loan amount and the partial claim payoff, the equity requirement is the steepest of the three options.
Getting the Partial Claim Payoff Statement
Before the refinance can close, the title company needs an official payoff statement from HUD showing the exact amount owed and the wiring instructions for sending the funds. Start with your current servicer. When it receives a payoff request on your FHA-insured mortgage, it is required to alert the requester that one or more partial claims exist and explain how to obtain the HUD payoff statement.4U.S. Department of Housing and Urban Development (HUD). Mortgagee Letter – Partial Claim Recording and Payoff Statement The servicer also submits the loan information through HUD’s SMART Integrated Portal so the statement can be generated.
The SMART Integrated Portal is the primary system for these requests. Borrowers, lenders, title companies, and authorized attorneys can create accounts, request payoff documents, upload materials, and track status.3U.S. Department of Housing and Urban Development (HUD). SFH – National Servicing Center If a title company or attorney is handling the request for you, you may need to sign a third-party authorization form.
Requests through the portal can be processed in minutes. Emailing the FHA Resource Center at answers@hud.gov takes two to three business days, and written requests can take up to five. Put your FHA case number in the subject line; only one case number per request is accepted.3U.S. Department of Housing and Urban Development (HUD). SFH – National Servicing Center Submit early, especially during periods of high volume, and have the statement sent to both your new lender and the title company so the closing disclosure accurately reflects the balance.
Closing, Funding, and the Lien Release
At closing, you sign the new loan documents. On a primary residence, federal law gives you a three-business-day right to rescind the transaction. The clock runs from the last of three events: signing the loan agreement, receiving required disclosures, or receiving the right-of-rescission notice.5Consumer Financial Protection Bureau. 12 CFR Part 1026 – Regulation Z, Section 1026.23 Right of Rescission During that window, the loan does not fund and payoffs are not sent.
Once the rescission period ends, the settlement agent wires the payoffs for your existing primary mortgage and the HUD partial claim separately. The partial claim funds go directly to HUD or its designated servicer. After HUD confirms receipt, it issues a satisfaction or release document for the partial claim lien.
That release has to be recorded with your county land records office to clear the partial claim from your title. The title company usually handles the recording, but follow up to confirm it happened. You can check the status of release requests through the SMART Integrated Portal or by calling the FHA Resource Center at 1-800-225-5342.3U.S. Department of Housing and Urban Development (HUD). SFH – National Servicing Center Keep a copy of the recorded release with your closing documents. It is your proof that the debt to HUD is resolved if the question comes up in a future sale or refinance.