Eligibility Requirements
Cash-out refinance transactions must meet the following requirements:
The transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property or be a new mortgage on a property that does not have a mortgage lien against it.
Properties that were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.
The property must have been purchased (or acquired) by the borrower at least six months prior to the disbursement date of the new mortgage loan except for the following:
There is no waiting period if the lender documents that the borrower acquired the property through an inheritance or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).
The delayed financing requirements are met. See Delayed Financing Exception below.
If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See B2-2-01, General Borrower Eligibility Requirements for additional details.)
If the property was owned prior to closing by an inter vivos revocable trust, the time held by the trust may be counted towards meeting the borrower’s six month ownership requirement if the borrower is the primary beneficiary of the trust.
For the maximum allowable LTV, CLTV, and HCLTV ratios and credit score requirements for cash-out refinances, see the Eligibility Matrix.
Ineligible Transactions
The following transaction types are not eligible as cash-out refinances:
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See also B2-1.2-04, Prohibited Refinancing Practices.
Acceptable Uses
The following are acceptable uses for cash-out refinance transactions:
paying off the unpaid principal balance of the existing first mortgage;
financing the payment of closing costs, points, and prepaid items. The borrower can include real estate taxes in the new loan amount. Delinquent real estate taxes (taxes past due by more than 60 days) can also be included in the new loan amount, but if they are, an escrow account must be established, subject to applicable law or regulation;
paying off any outstanding subordinate mortgage liens of any age;
taking equity out of the subject property that may be used for any purpose;
financing a short-term refinance mortgage loan that combines a first mortgage and a non-purchase-money subordinate mortgage into a new first mortgage or a refinance of the short-term refinance loan within six months.
Delayed Financing Exception
Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met.
| ✓ | Requirements for a Delayed Financing Exception |
|---|---|
| The original purchase transaction was an arms-length transaction. | |
For this refinance transaction, the borrower(s) must meet Fannie Mae’s borrower eligibility requirements as described in B2-2-01, General Borrower Eligibility Requirements. The borrower(s) may have initially purchased the property as one of the following:
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| The original purchase transaction is documented by a settlement statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee's deed (or similar alternative) confirming the amount paid by the grantee to trustee may be substituted for a settlement statement if a settlement statement was not provided to the purchaser at time of sale.) The preliminary title search or report must confirm that there are no existing liens on the subject property. | |
The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property). | |
| If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the settlement statement for the refinance transaction must reflect that all cash-out proceeds be used to pay off or pay down, as applicable, the loan used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction. Note: Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan. | |
The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value). | |
| All other cash-out refinance eligibility requirements are met. Cash-out pricing is applicable. |
Student Loan Cash-Out Refinances
The student loan cash-out refinance feature allows for the payoff of student loan debt through the refinance transaction with a waiver of the cash-out refinance LLPA if all of the following requirements are met:
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Loans qualified as student loan cash-out refinances must be delivered to Fannie Mae with Special Feature Code (SFC) 003 and SFC 841.
Loan-Level Price Adjustments
An LLPA applies to certain cash-out refinance transactions based on the LTV ratio and credit score. These LLPAs are in addition to any other price adjustments that are otherwise applicable to the particular transaction. See the Loan-Level Price Adjustment (LLPA) Matrix.
As noted above, the LLPA is waived for loans that meet the student loan cash-out refinance requirements.
Related Announcements
The table below provides references to the Announcements that have been issued that are related to this topic.
| Announcements | Issue Date |
|---|---|
| Announcement SEL-2017-10 | December 19, 2017 |
| Announcement SEL-2017-06 | July 25, 2017 |
| Announcement SEL-2017-04 | April 25, 2017 |
| Announcement SEL-2016–05 | June 28, 2016 |
| Announcement SEL-2016–03 | March 29, 2016 |
| Announcement SEL-2016–02 | February 23, 2016 |
| Announcement SEL-2014–06 | May 27, 2014 |
| Announcement SEL-2013–04 | May 28, 2013 |
| Announcement SEL-2012–14 | December 18, 2012 |
| Announcement SEL-2012-13 | November 13, 2012 |
| Announcement SEL-2012–01 | January 31, 2012 |
| Announcement SEL-2011–06 | July 26, 2011 |
| Announcement SEL-2011–05 | June 28, 2011 |
| Announcement SEL-2011–03 | March 31, 2011 |
| Announcement SEL-2010–16 | December 1, 2010 |
| Announcement SEL-2010–11 | August 31, 2010 |
| Announcement 09-32 | October 30, 2009 |