source:
  type: guide
  id: fnma-sel-b2-1.3-03
  authority: Fannie Mae Selling Guide B2-1.3-03 — Cash-Out Refinance Transactions
  description: Fannie Mae Selling Guide B2-1.3-03 — Cash-Out Refinance Transactions.
  coverage_tier: operative
obligations:
- id: fnma-sel-b2-1.3-03-full
  canonical_id: fnma-sel-b2-1.3-03-full
  section: Fannie Mae Selling Guide B2-1.3-03 — Cash-Out Refinance Transactions
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B2-1.3-03 — Cash-Out Refinance Transactions
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B2-1.3-03, Cash-Out Reﬁnance Transactions (12/10/2025) Introduction
      This topic contains information on cash-out reﬁnance transactions, including:
      Eligibility Requirements Ownership of the Property Ineligible Transactions Acceptable
      Uses Delayed Financing Exception Student Loan Cash-Out Reﬁnances Loan-Level
      Price Adjustments Published May 6, 2026 180 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 reﬁnance loans,
      see the Eligibility Matrix. See Cash-Out Reﬁnance Transactions in B5-2-03, Manufactured
      Housing Underwriting Requirements for additional information. 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 below. 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.
      Published May 6, 2026 181 Ineligible Transactions The following transaction
      types are not eligible as cash-out reﬁnances: The mortgage loan is subject to
      a temporary interest rate buydown. 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 classiﬁed
      as HomeStyle Refresh. However, improvements are permitted. 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 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. See also B2-1.3-04,
      Prohibited Reﬁnancing Practices. Acceptable Uses The following are acceptable
      uses for cash-out reﬁnance transactions: paying oﬀ the UPB of the existing ﬁrst
      mortgage (provided the existing ﬁrst mortgage is at least 12 months old); 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. 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. Published May 6, 2026
      182 ✓ Requirements for a Delayed Financing Exception The original purchase transaction
      was an arms-length transaction. For this reﬁnance transaction, the borrower(s)
      must meet Fannie Mae’s borrower eligibility requirements as described in B2-2-01,
      General Borrower Eligibility Requirements. The borrower(s) may have initially
      purchased the property as one of the following: • a natural person; • an eligible
      inter vivos revocable trust, when the borrower is both the individual establishing
      the trust and the beneﬁciary of the trust; • an eligible land trust when the
      borrower is the beneﬁciary of the land trust; or • an LLC or partnership in
      which the borrower(s) have an individual or joint ownership of 100%. The original
      purchase transaction is documented by a settlement statement, which conﬁrms
      that no mortgage ﬁnancing was used to obtain the subject property. (A recorded
      trustee''s deed (or similar alternative) conﬁrming the amount paid by the grantee
      to trustee may be substituted for a settlement statement if a settlement statement
      was not provided to the purchaser at time of sale.) The preliminary title search
      or report must conﬁrm that there are no existing liens on the subject property.
      The sources of funds for the purchase transaction are documented (such as bank
      statements, personal loan documents, or a HELOC on another property). If the
      source of funds used to acquire the property was an unsecured loan or a loan
      secured by an asset other than the subject property (such as a HELOC secured
      by another property), the settlement statement for the reﬁnance transaction
      must reﬂect that all cash-out proceeds be used to pay oﬀ or pay down, as applicable,
      the loan used to purchase the property. Any payments on the balance remaining
      from the original loan must be included in the debt-to- income ratio calculation
      for the reﬁnance transaction. 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). All other cash-out reﬁnance eligibility requirements are met. Cash-out
      pricing is applicable. Published May 6, 2026 183 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: ✓ Requirements for Student
      Loan Cash-out Reﬁnances The loan must be underwritten in DU. DU cannot speciﬁcally
      identify these transactions, but will issue a message when it appears that only
      subject property liens and student loans are marked paid by closing. The message
      will remind lenders about certain requirements below; however, the lender must
      conﬁrm the loan meets all of the requirements outside of DU. The standard cash-out
      reﬁnance LTV, CLTV, and HCLTV ratios apply per the Eligibility Matrix. At least
      one student loan must be paid oﬀ with proceeds from the subject transaction
      with the following criteria: • proceeds must be paid directly to the student
      loan servicer at closing; • at least one borrower must be obligated on the student
      loan(s) being paid oﬀ, and • the student loan must be paid in full - partial
      payments are not permitted. The transaction may also be used to pay oﬀ one of
      the following: • an existing ﬁrst mortgage loan (including an existing HELOC
      in ﬁrst-lien position); or • 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. Only subordinate liens used to purchase the property may
      be paid oﬀ and included in the new mortgage. Exceptions are allowed for paying
      oﬀ a PACE loan or other debt (secured or unsecured) that was used solely for
      energy improvements (see B5-3.4-01, Property Assessed Clean Energy Loans and
      B5-3.3-01, HomeStyle Refresh for Improvements on Existing Properties for additional
      information). The transaction may be used to ﬁnance the payment of closing costs,
      points, and prepaid items. With the exception of real estate taxes that are
      more than 60 days delinquent, the borrower can include real estate taxes in
      the new loan amount as long as an escrow account is established, subject to
      applicable law or regulation. Published May 6, 2026 184 ✓ Requirements for Student
      Loan Cash-out Reﬁnances The borrower may receive cash back in an amount that
      does not exceed the greater of 1% of the new reﬁnance loan amount or $2,000.
      The lender may also refund the borrower for the overpayment of fees and charges
      due to federal or state laws or regulations, or apply a principal curtailment
      (see B2-1.3-02, Limited Cash-Out Reﬁnance Transactions for additional information).
      Unless otherwise stated, all other standard cash-out reﬁnance requirements apply.
      Delivery Requirements Loans qualiﬁed as student loan cash-out reﬁnances must
      be delivered to Fannie Mae with Special Feature Code (SFC) 003 and SFC 841.
      Loan-Level Price Adjustments 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. As noted above, the LLPA
      is waived for loans that meet the student loan cash-out reﬁnance requirements.
      Recent Related Announcements The table below provides references to recently
      issued Announcements that are related to this topic. Announcements Issue Date
      Announcement SEL-2025-10 December 10, 2025 Announcement SEL-2025-08 October
      08, 2025 Announcement SEL-2023-01 February 01, 2023 Announcement SEL-2020-06
      October 07, 2020 Announcement SEL-2019-06 July 03, 2019 Published May 6, 2026
      185'
  judgment: false
