Eligibility 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 at least one borrower no less than 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).

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 subject property was purchased by at least one borrower within 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 Energy (PACE) loan, borrowers who refinance the first mortgage loan and have sufficient equity to pay off the PACE loan but choose not to do so will be ineligible for a cash-out refinance. See B5-3.4-01, Property Assessed Clean Energy Loans for additional information.

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

The new loan amount includes the financing of real estate taxes that are more than 60 days delinquent and an escrow account is not established, unless requiring an escrow my website account is not permitted by applicable law or regulation. For example, if a particular state law does not allow a lender to require an escrow account under certain circumstances, the loan would be eligible for sale to Fannie Mae without an escrow account.

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

Acceptable Uses

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;

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.

an eligible inter vivos revocable trust, when the borrower is both the individual establishing the trust and the beneficiary of the trust;

The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).

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).

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:

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.

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

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.