Does a home equity loan show up when I refinance my mortgage if it does not appear on my credit report?
The answer to your question depends on if the home equity loan lender has a claim against your property but the answer is most likely yes.
When you apply to refinance your mortgage, the lender orders a title search, also known as a title report or abstract, to determine the outstanding liens recorded on the property. Examples of liens include a mortgage, home equity loan, HELOC or overdue property tax bill.
The lender reviews the title search to make sure that there are no liens that could interfere with the lender’s claim to the property in the event that you default on the mortgage. For example, if there is an existing home equity loan lien on the property, that lender may be entitled to be repaid before any other lenders, depending on when the lien was recorded.
So if your home equity loan lender has an outstanding claim against your property, the lien should appear on the title report even if the home equity loan does not show up on your credit report. In this scenario, the refinance lender usually requires that the home equity loan lien is removed from the property before your refinance closes.
Removing a lien is usually accomplished by paying off the outstanding loan balance or another amount agreed to by the lender. In some cases a refinance lender may allow the home equity loan to remain in place if that lender subordinates its loan to the new mortgage.
When a home equity loan lender subordinates its loan it means that the loan becomes second in priority to the mortgage. So if something unfortunate happens and the lender forecloses on the property, the mortgage lender is repaid before the home equity loan lender.
Please note that not all home equity lenders agree to subordination requests and this approach may not be acceptable to the refinance lender, depending on how much equity you hold in the property.
If the home equity loan does not appear on either your credit or the title reports, then you are in the clear and it is a non-issue when you apply for the refinance. If you are uncertain if the home equity loan shows up on your property title we recommend that you contact a title company and request a preliminary title search. This information should enable you to understand the liens on your property and address the home equity loan, if necessary.
One potential solution if you learn the home equity loan remains outstanding is to pay off the loan when you refinance, assuming you have enough equity in your property. This approach satisfies both the refinance and home equity loan lenders because the lien is removed and the loan balance is paid off.
The table below shows refinance lenders in your area. We recommend that you contact multiple lenders to understand how they would handle your situation including how you should potentially address the home equity loan. Shopping lenders is also the best way to save money when you refinance.
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Sources
"B3-6-05, Home Equity Lines of Credit." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 5 2020. Web.
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