It’s not everyday that a home is sold in a month or less. Some properties remain unsold on the Multiple Listing Service (MLS) for six months. What if a homeowner has a change of heart and decides to do a cash-out refinance instead? What about the usual cash-out seasoning period?
Existing guidelines across most loan programs would say no. They are generally clear about a home not being listed for sale before a refinance and the homeowner has a better reason than the home not selling than expected.
Fannie Mae, however, has softened its stance toward consumers who listed their homes for sale in the previous six months and their prospects in cash-out refinancing. The enhancement available with Desktop Underwriter® Version 10.1 removes the cash-out seasoning requirement for these listed homes, making it possible for their owners to refinance and cash in on their home equity.
It’s an update that sells to homeowners who might not have scored a sale but won a better chance at cash-out refinancing with more less stringent eligibility requirements on conventional mortgages sold to Fannie Mae.
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DU® Drops Cash-out Seasoning Requirement for Listed Properties
Fannie Mae’s latest DU® contains software updates to align with its Selling Guide. DU® Version 10.1 contains an updated guideline on cash-out transactions, eliminating additional eligibility restrictions for homes listed for sale in the past six months.
This means that Fannie Mae now allows for the cash-out refinance to take place concurrent with the removal of the property from the MLS on or before the disbursement date of the new loan.
What’s more, Fannie will not limit the amount of cashback a refinancing homeowner can receive from the transaction.
Cash-out Refinance Guidelines, as Updated
As they stand now, take a look at Fannie Mae’s eligibility requirements for cash-out refinances.
1. The proceeds of the new loan must go toward the payoff the existing mortgage, securing the same property as the existing mortgage. The property must not have any other mortgage lien attached to it.
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2. A listing on a property for sale must be removed on or before the new loan’s disbursement date.
3. The borrower must have purchased or acquired the property at least six months before the new loan’s disbursement date, provided that the property was inherited or meets delayed financing requirements.
4. The following transactions are ineligible for a cash-out refinance:
- A mortgage with an temporary interest rate buy down.
- A property with Property Assessed Clean Energy liens and the borrower chose not to pay these loans despite having sufficient equity.
- A portion of the new loan’s proceeds pays off an installment land contract.
- A new loan that includes payment of delinquent real estate taxes (60+ days) and has no escrow.
Proceeds from the cash-out refinance can go toward the existing loan’s outstanding mortgage balance and the new loan’s closing costs, prepaid items, and points. New loan proceeds can also pay off any subordinate mortgage attached to the property.
Indeed, borrowers can use a cash-out refinance to take out their home equity for any purpose, including debt consolidation and university education.
Financing and refinancing short-term mortgage loans are also an acceptable use of cash-out transactions.
Standard credit score and maximum loan-to-value, combined loan-to-value and high combined loan-to-value (collectively, LTV ratios) requirements for conventional loans eligible for Fannie Mae purchase will apply on.
Home equity represents a homeowner’s wealth. Fannie Mae’s removal of seasoning requirements for properties listed for sale in the previous six months just makes it easier for homeowners to seek a cash-out refinance even when they remove their listing off the MLS a day before the disbursement date.