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 by 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).
- The delayed financing requirements are met.
- 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 DU loan casefiles, if the DTI ratio exceeds 45%, six 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.
For additional information, see B2-1.3-03, Cash-Out Refinance Transactions.