Selling Guide

Published April 07, 2021

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How are refinance transactions defined when subordinate financing exists?

Defining Refinance Transactions Based on Subordinate Lien Payoff

The table below provides the underwriting considerations related to subordinate financing under refinance transactions.

If the refinance transaction includes payoff of the first lien and … Then lenders must underwrite the transaction as a … Comments
the payoff of a purchase money second with no cash out, Limited cash-out refinance N/A
the payoff of a non-purchase money second, regardless of whether additional cash out is taken, Cash-out refinance N/A
the subordinate financing is being left in place, regardless of whether the subordinate financing was used to purchase the property, and the borrower is not taking cash out except to the extent permitted for a limited cash-out refinance transaction, Limited cash-out refinance

The subordinate lien must be resubordinated to the new first mortgage loan.

the subordinate financing is being left in place, regardless of whether the subordinate financing was used to purchase the property, and the borrower is taking cash out, Cash-out refinance

For additional information, see B2-1.2-04, Subordinate Financing.

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