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B2-1.iii-03, Cash-Out Refinance Transactions (10/07/2020)

Introduction

This topic contains information on greenbacks-out refinance transactions, including:

• Eligibility Requirements
• Ineligible Transactions
• Adequate Uses
• Delayed Financing Exception
• Educatee Loan Greenbacks-Out Refinances
• Loan-Level Price Adjustments

Eligibility Requirements

Cash-out refinance transactions must run across the post-obit requirements:

• The transaction must be used to pay off existing mortgages past obtaining a new beginning mortgage secured by the aforementioned holding or be a new mortgage on a property that does non accept 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 belongings must have been purchased (or acquired) by at least 1 borrower no less than vi months prior to the disbursement date of the new mortgage loan except for the following:

  • At that place is no waiting catamenia if the lender documents that the borrower caused 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 beneath.

  • 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 past the LLC may be counted towards coming together the borrower's six calendar month buying requirement. (In order to shut the refinance transaction, ownership must be transferred out of the LLC and into the proper name of the individual borrower(s). See B2-2-01, General Borrower Eligibility Requirements for additional details.)

  • If the belongings 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 chief beneficiary of the trust.

• For DU loan casefiles, if the DTI ratio exceeds 45%, vi months reserves is required.

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 greenbacks-out refinances:

• The mortgage loan is discipline to a temporary interest rate buydown.

• The subject property was purchased by at to the lowest degree one borrower inside the six months preceding the disbursement date of the new mortgage loan except if delayed financing guidelines are met. See Delayed Financing Exception below.

• For certain transactions on properties that have a Property Assessed Clean Free energy (Stride) loan, borrowers who refinance the showtime mortgage loan and have sufficient equity to pay off the PACE loan but choose non to do so volition be ineligible for a greenbacks-out refinance. See B5-three.4-01, Property Assessed Clean Free energy Loans for additional information.

• Transactions classified as HomeStyle Energy loans. However, free energy-related improvements are permitted.

• Transactions in which a portion of the proceeds of the refinance is used to pay off the outstanding remainder on an installment land contract, regardless of the date the installment state contract was executed.

• The new loan corporeality includes the financing of real estate taxes that are more than lx days delinquent and an escrow account is not established, unless requiring an escrow account is non permitted by applicable law or regulation. For example, if a particular land police force does not permit a lender to crave an escrow business relationship under sure circumstances, the loan would exist eligible for sale to Fannie Mae without an escrow account.

The transaction is not eligible for delivery to Fannie Mae if the subject belongings is listed for sale at the time of disbursement of the new mortgage loan.

See also B2-ane.3-04, Prohibited Refinancing Practices.

Acceptable Uses

The following are adequate uses for cash-out refinance transactions:

• paying off the unpaid main balance of the existing first mortgage;

• financing the payment of closing costs, points, and prepaid items. The borrower tin can include real estate taxes in the new loan corporeality. Runaway real manor taxes (taxes past due by more than than 60 days) tin also be included in the new loan amount, but if they are, an escrow business relationship must be established, subject field to applicable law or regulation;

• paying off any outstanding subordinate mortgage liens of whatsoever age;

• taking equity out of the subject property that may exist used for any purpose;

• financing a short-term refinance mortgage loan that combines a commencement 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 belongings within the past 6 months (measured from the date on which the property was purchased to the disbursement appointment 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(south) must meet Fannie Mae's borrower eligibility requirements as described in B2-ii-01, General Borrower Eligibility Requirements. The borrower(s) may have initially purchased the property as one of the post-obit: a natural person; an eligible inter vivos revocable trust, when the borrower is both the private establishing the trust and the beneficiary of the trust; an eligible land trust when the borrower is the beneficiary of the land trust; or an LLC or partnership in which the borrower(due south) have an individual or articulation ownership of 100%.
	The original buy transaction is documented by a settlement argument, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee's deed (or similar culling) confirming the amount paid past the grantee to trustee may be substituted for a settlement argument if a settlement statement was non provided to the purchaser at time of sale.) The preliminary championship search or report must ostend that in that location are no existing liens on the subject property.
	The sources of funds for the purchase transaction are documented (such as depository financial institution statements, personal loan documents, or a HELOC on another property).
	If the source of funds used to larn the property was an unsecured loan or a loan secured by an nugget other than the subject property (such as a HELOC secured past some other property), the settlement statement for the refinance transaction must reflect that all cash-out proceeds exist used to pay off or pay downwardly, every bit applicable, the loan used to purchase the holding. 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 corporeality can be no more than the actual documented amount of the borrower's initial investment in purchasing the holding 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 greenbacks-out refinance eligibility requirements are met. Cash-out pricing is applicable.

Pupil Loan Greenbacks-Out Refinances

The student loan cash-out refinance characteristic allows for the payoff of pupil loan debt through the refinance transaction with a waiver of the cash-out refinance LLPA if all of the following requirements are met:

✓	Requirements for Student Loan Cash-out Refinances
	The loan must be underwritten in DU. DU cannot specifically place these transactions, but will event a message when it appears that only field of study holding liens and pupil loans are marked paid past closing. The message will remind lenders about certain requirements below; still, the lender must ostend the loan meets all of the requirements outside of DU.
	The standard cash-out refinance LTV, CLTV, and HCLTV ratios apply per the Eligibility Matrix .
	At least i student loan must be paid off with proceeds from the subject transaction with the post-obit criteria: proceeds must be paid directly to the student loan servicer at endmost; at to the lowest degree one borrower must exist obligated on the student loan(south) being paid off, and the pupil loan must be paid in full - partial payments are not permitted.
	The transaction may likewise be used to pay off one of the following: an existing first mortgage loan (including an existing HELOC in get-go-lien position); or a single-closing construction-to-permanent loan to pay for construction costs to build the home, which may include paying off an existing lot lien.
	But subordinate liens used to purchase the property may be paid off and included in the new mortgage. Exceptions are allowed for paying off a PACE loan or other debt (secured or unsecured) that was used solely for free energy improvements (see B5-3.four-01, Property Assessed Make clean Energy Loans and B5-iii.3-01, HomeStyle Energy for Improvements on Existing Properties for additional information).
	The transaction may exist used to finance the payment of closing costs, points, and prepaid items. With the exception of real estate taxes that are more than 60 days delinquent, the borrower can include existent estate taxes in the new loan amount equally long every bit an escrow account is established, subject to applicative law or regulation.
	The borrower may receive greenbacks back in an amount that is not more the lesser of ii% of the new refinance loan amount or $2,000. The lender may also refund the borrower for the overpayment of fees and charges due to federal or state laws or regulations, or employ a principal cutback (see B2-one.3-02, Limited Cash-Out Refinance Transactions for additional information).
	Unless otherwise stated, all other standard cash-out refinance requirements apply.

Delivery Requirements

Loans qualified every bit student loan cash-out refinances must be delivered to Fannie Mae with Special Feature Code (SFC) 003 and SFC 841.

Loan-Level Cost Adjustments

An LLPA applies to certain greenbacks-out refinance transactions based on the LTV ratio and credit score. These LLPAs are in addition to whatever other price adjustments that are otherwise applicable to the particular transaction. See the Loan-Level Price Adjustment (LLPA) Matrix.

Equally 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	Consequence Engagement
Announcement SEL-2020-06	Oct 07, 2020
Annunciation SEL-2019-06	July 03, 2019
Announcement SEL-2018-09	December 04, 2018
Announcement SEL-2017-ten	Dec 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
Proclamation SEL-2014–06	May 27, 2014
Announcement SEL-2013–04	May 28, 2013
Announcement SEL-2012–14	December eighteen, 2012
Announcement SEL-2012-13	November xiii, 2012
Annunciation SEL-2012–01	January 31, 2012
Announcement SEL-2011–06	July 26, 2011
Declaration SEL-2011–05	June 28, 2011
Announcement SEL-2011–03	March 31, 2011
Declaration SEL-2010–16	December 1, 2010
Announcement SEL-2010–11	August 31, 2010
Announcement 09-32	October 30, 2009

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Source: https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B2-Eligibility/Chapter-B2-1-Mortgage-Eligibility/Section-B2-1-3-Loan-Purpose/1032996711/B2-1-3-03-Cash-Out-Refinance-Transactions-07-03-2019.htm

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