Selling Guide

Published June 02, 2021

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What are acceptable uses for a cash-out refinance transaction?

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.

For complete details, see B2-1.3-03, Cash-Out Refinance Transactions.

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