source:
  type: guide
  id: fnma-sel-b2-1.3-02
  authority: Fannie Mae Selling Guide B2-1.3-02 — Limited Cash-Out Refinance Transactions
  description: Fannie Mae Selling Guide B2-1.3-02 — Limited Cash-Out Refinance Transactions.
  coverage_tier: operative
obligations:
- id: fnma-sel-b2-1.3-02-full
  canonical_id: fnma-sel-b2-1.3-02-full
  section: Fannie Mae Selling Guide B2-1.3-02 — Limited 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 B2-1.3-02 — Limited 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: 'B2-1.3-02, Limited Cash-Out Reﬁnance Transactions (10/08/2025)
      Introduction This topic contains information on limited cash-out reﬁnance transactions,
      including: Eligibility Requirements Additional Requirements for Limited Cash–Out
      Reﬁnance Transactions with LTV, CLTV, or HCLTV Ratios of 95.01 – 97% Ineligible
      Transactions Acceptable Uses Cash Back Documentation Requirements Existing Subordinate
      Liens That Will Not Be Paid Oﬀ New Subordinate Financing Reﬁnances to Buy Out
      An Owner’s Interest Exceptions to Limited Cash-Out Reﬁnance Requirements for
      High Loan-to-Value Reﬁnance Loans Eligibility Requirements Limited cash-out
      reﬁnance transactions must meet the following requirements: The transaction
      is being used to obtain a new ﬁrst mortgage secured by the same property to
      pay oﬀ an existing ﬁrst mortgage (including an existing HELOC in ﬁrst-lien position);
      pay oﬀ an existing construction loan and documented construction cost overruns
      that were incurred outside of the interim construction ﬁnancing for two-closing
      construction-to-permanent loans. (These construction cost overruns must be paid
      directly to the builder at closing.); pay for construction costs to build the
      home for single-closing construction-to-permanent loans, which may include paying
      oﬀ an existing lot lien; or pay oﬀ an installment land contract that was executed
      more than 12 months before the date of the loan application. At least one borrower
      on the new loan must be an owner (on title) of the subject property at the time
      of the initial application. Exceptions are allowed if the lender documents that
      the borrower acquired the property through an inheritance or was legally awarded
      the property (such as through a divorce, separation, or dissolution of a domestic
      partnership); or the property was previously owned by an inter vivos revocable
      trust and the borrower is the primary beneﬁciary of the trust; the borrower
      is currently ﬁnancially obligated on the loan being paid oﬀ but not on the title.
      This includes loans where the property is currently owned by a limited liability
      corporation (LLC) that is majority owned or controlled by the borrower(s). Ownership
      must be transferred into the name of the individual borrower(s). See B2-2-01,
      General Borrower Eligibility Requirements for additional requirements; or the
      borrower is paying oﬀ an installment land contract that was executed more than
      12 months before the date of the loan application. Published May 6, 2026 175
      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 Property Assessed
      Clean Energy (PACE) loan or other debt (secured or unsecured) that was used
      solely for energy-related improvements. See B5-3.3-01, HomeStyle Refresh for
      Improvements on Existing Properties, for additional information. If the subject
      property was previously listed for sale, it must have been taken oﬀ the market
      on or before the disbursement date of the new loan. Additional Requirements
      for Limited Cash–Out Reﬁnance Transactions with LTV, CLTV, or HCLTV Ratios of
      95.01 – 97% If the LTV, CLTV, or HCLTV ratio exceeds 95% for a limited cash-out
      transaction, the following requirements also apply. Criteria Requirements Existing
      Loan The lender must inform DU that the existing loan is owned (or securitized)
      by Fannie Mae using the Owner of Existing Mortgage ﬁeld in the online loan application
      before submitting the loan to DU. The DU message indicating the borrower''s
      existing loan was identiﬁed as a Fannie Mae loan may be relied upon as conﬁrmation
      the loan is owned by Fannie Mae. When DU is not able to identify the borrower''s
      existing loan is owned (or securitized) by Fannie Mae, the lender must provide
      documentation. Documentation may come from • the lender’s servicing system,
      • the current servicer (if the lender is not the servicer), • Fannie Mae’s Loan
      Lookup tool, or • any other source as conﬁrmed by the lender. Note: This requirement
      does not apply if the CLTV exceeds 95% only due to a Community Seconds loan.
      LTV, CLTV, or HCLTV Ratio 95.01 to 97% Note: The CLTV ratio can be up to 105%
      if the subordinate lien is a Community Seconds loan. Loan Type Fixed-rate loans
      with terms up to 30 years. Note: High-balance and ARM loans are not permitted.
      Published May 6, 2026 176 Criteria Requirements Property and Occupancy One-unit
      principal residence. All borrowers must occupy the property. Manufactured housing
      is not permitted, unless the property meets the MH Advantage requirements. Underwriting
      Method DU only Other All other standard limited cash-out reﬁnance policies apply.
      Note: The above requirements do not apply to HomeReady or high LTV reﬁnance
      loans. For additional information, see B5-6-01, HomeReady Mortgage Loan and
      Borrower Eligibility or B5-7-01, High LTV Reﬁnance Loan and Borrower Eligibility
      accordingly. Ineligible Transactions When the following conditions exist, the
      transaction is ineligible as a limited cash-out reﬁnance and must be treated
      as a cash-out reﬁnance: no outstanding ﬁrst lien on the subject property (except
      for single-closing construction-to-permanent transactions, which are eligible
      as a limited cash-out out reﬁnance even though there is not an outstanding lien
      on the subject property); the proceeds are used to pay oﬀ a subordinate lien
      that was not used to purchase the property (other than the exceptions for paying
      oﬀ PACE loans and other debt used for energy-related improvements, described
      above); the borrower ﬁnances the payment of real estate taxes that are more
      than 60 days delinquent for the subject property in the loan amount; and a short-term
      reﬁnance mortgage loan that combines a ﬁrst mortgage and a non-purchase-money
      subordinate mortgage into a new ﬁrst mortgage or any reﬁnance of that loan within
      six months. See also B2-1.3-04, Prohibited Reﬁnancing Practices. Acceptable
      Uses The following are acceptable in conjunction with a limited cash-out reﬁnance
      transaction: modifying the interest rate and/or term for existing mortgages;
      paying oﬀ the existing ﬁrst mortgage (which may include additional amounts required
      to pay oﬀ the loan, such as prepayment penalties, a deferred balance resulting
      from completion of a prior loss mitigation solution, and late fees); paying
      for construction costs to build a home for a single-closing construction-to-permanent
      transaction, Published May 6, 2026 177 which may include paying oﬀ an existing
      lot lien; paying oﬀ the construction loan and documented construction cost overruns
      for a two-closing construction-to-permanent loan; paying oﬀ the installment
      land contract that was executed more than 12 months before the date of the loan
      application; ﬁnancing 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 provided the
      real estate taxes must be paid in full through the transaction, and payment
      for the taxes must be disbursed to the taxing authority through the closing
      transaction, with no funds used for the taxes disbursed to the borrower; providing
      cash back to the borrower (or any other party) in an amount that, in aggregate,
      does not exceed the greater of 1% of the new reﬁnance loan amount or $2,000;
      buying out a co-owner pursuant to an agreement; paying oﬀ a subordinate mortgage
      lien (including prepayment penalties) used to purchase the subject property.
      (When the subordinate loan is a Community Seconds, payoﬀ may include any required
      payment of the share of appreciation due to the Community Seconds provider under
      the terms of the shared appreciation agreement.)The lender must document that
      the entire amount of the subordinate ﬁnancing was used to acquire the property;
      or paying oﬀ the unpaid principal balance of PACE loans and other debt used
      for energy-related improvements, described above. Cash Back As noted above,
      the lender may provide a small amount of cash back in a limited cash-out reﬁnance
      transaction. The lender may also refund the borrower for the overpayment of
      fees and charges due to federal or state laws or regulations. Refunds such as
      these are not included in the maximum cash back limitation, provided that the
      settlement statement clearly identiﬁes the refund, and the loan ﬁle includes
      documentation to support the amount and reason for the refund. This applies
      to standard limited cash-out reﬁnance transactions. For high LTV reﬁnance transactions,
      see B5-7-01, High LTV Reﬁnance Loan and Borrower Eligibility. Note: These refunds
      may also be applied as a principal balance curtailment in accordance with B2-1.5-05,
      Principal Curtailments. Documentation Requirements To treat a transaction as
      a limited cash-out reﬁnance transaction, the lender must document that all proceeds
      of the existing subordinate lien were used to fund part of the subject property
      purchase price or pay for permissible energy-related expenses. Written conﬁrmation
      must be maintained in the mortgage ﬁle. The following are acceptable forms of
      documentation: a copy of the settlement statement for the purchase of the property;
      a copy of the title policy from the purchase transaction that identiﬁes the
      subordinate ﬁnancing; Published May 6, 2026 178 other documentation from the
      purchase transaction that indicates that a subordinate lien was used to purchase
      the subject property; or for energy-related expenses, copies of invoices or
      receipts to evidence funds were used for energy improvements. A copy of an energy
      report is required in many cases. See B5-3.3-01, HomeStyle Refresh for Improvements
      on Existing Properties, for additional information. Existing Subordinate Liens
      That Will Not Be Paid Oﬀ When a new limited cash-out reﬁnance transaction will
      not satisfy existing subordinate liens, the existing liens must be clearly subordinate
      to the new reﬁnance mortgage. The reﬁnance mortgage must meet Fannie Mae’s eligibility
      criteria for mortgages that are subject to subordinate ﬁnancing. New Subordinate
      Financing When a borrower obtains new subordinate ﬁnancing with the reﬁnancing
      of a ﬁrst mortgage loan, Fannie Mae treats the transaction as a limited cash-out
      reﬁnance provided the ﬁrst mortgage loan meets the eligibility criteria for
      a limited cash-out reﬁnance transaction. Note: It is acceptable for borrowers
      to obtain cash from the proceeds of the new subordinate mortgage. Reﬁnances
      to Buy Out An Owner’s Interest A transaction that requires one owner to buy
      out the interest of another owner (for example, as a result of a divorce settlement
      or dissolution of a domestic partnership) is considered a limited cash-out reﬁnance
      if the secured property was jointly owned for at least 12 months preceding the
      disbursement date of the new mortgage loan. All parties must sign a written
      agreement that states the terms of the property transfer and the proposed disposition
      of the proceeds from the reﬁnance transaction. Except in the case of recent
      inheritance of the subject property, documentation must be provided to indicate
      that the security property was jointly owned by all parties for at least 12
      months preceding the disbursement date of the new mortgage loan. Borrowers who
      acquire sole ownership of the property may not receive any of the proceeds from
      the reﬁnancing. The party buying out the other party’s interest must be able
      to qualify for the mortgage pursuant to Fannie Mae’s underwriting guidelines.
      Exceptions to Limited Cash-Out Reﬁnance Requirements for High Loan-to-Value
      Reﬁnance Loans See Chapter B5-7: High Loan-to-Value Reﬁnance Option, for modiﬁcations
      to the standard limited cash-out reﬁnance requirements for high LTV loan transactions.
      Recent Related Announcements Published May 6, 2026 179 The table below provides
      references to recently issued Announcements that are related to this topic.
      Announcements Issue Date Announcement SEL-2025-08 October 08, 2025 Announcement
      SEL-2025-04 June 04, 2025 Announcement SEL-2025-02 April 02, 2025 Announcement
      SEL-2024-08 December 11, 2024 Announcement SEL-2023-06 July 05, 2023 Announcement
      SEL-2023-05 June 07, 2023 Announcement SEL-2022-05 June 01, 2022 Announcement
      SEL-2020-03 June 03, 2020 Announcement SEL-2019-07 August 07, 2019'
  judgment: false
