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What are the eligibility requirements for a cash-out refinance transaction?

Eligibility Requirements 

The following requirements apply to cash-out refinance transactions:

  • The transaction must be used to pay off existing mortgage loans 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 (the borrower owns the property free and clear at the time of refinance).
  • If an existing first mortgage is being paid off through the transaction, it must be at least 12 months old at the time of refinance, as measured by the note date of the existing loan to the note date of the new loan. This requirement does not apply
    • to any existing subordinate liens being paid off through the transaction, or
    • when buying out a co-owner pursuant to a legal agreement.
  • At least one borrower must have been on title for at least for six months prior to the disbursement date of the new loan. See Ownership of the Property below for exceptions.
  • For DU loan casefiles, if the DTI ratio exceeds 45%, six months reserves is required.
  • Properties that were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.
  • For the maximum allowable LTV, CLTV, and HCLTV ratios and credit score requirements for manually underwritten cash-out refinances, see the Eligibility Matrix

Ownership of the Property

At least one borrower must have been on title to the subject property for at least six months prior to the disbursement date of the new loan, unless one of the following exceptions apply:

  • 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.
  • 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.

The above ownership policy applies in addition to the requirement that an existing first mortgage being paid off through the refinance is at least 12 months old.

For additional information, see B2-1.3-03, Cash-Out Refinance Transactions.

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