Freddie Mac Single-Family Seller/Servicer Guide 4301.5 — Cash-out refinance Mortgages

A cash-out refinance Mortgage is a Mortgage for which there are no specific restrictions on the use of the proceeds. This section contains requirements related to: ■ Occupancy requirement for Primary Residences ■ Six-month ownership requirement for the Mortgaged Premises ■ Cash-out refinance Mortgage paying off a First Lien Mortgage ■ Cash-out refinance Mortgage on a property owned free and clear ■ Credit Fees

(a) Occupancy requirement for Primary Residences For a cash-out refinance Mortgage secured by a Primary Residence, all Borrowers must occupy the Mortgaged Premises.

(b) Six-month ownership requirement for the Mortgaged Premises For all cash-out refinance Mortgages, at least one Borrower must have been on title to the Mortgaged Premises for at least six months prior to the Note Date or as follows: ■ Leasehold estates: When the property is a leasehold estate, at least one Borrower must have been lessee on the ground lease or lease agreement of the subject leasehold estate for at least six months ■ Cooperative Unit: When the property is a Cooperative Unit, at least one Borrower must have held Cooperative Shares corresponding to the Cooperative Unit that is the subject of the Cooperative Share Loan for at least six months ■ Title held by limited liability company (LLC) or limited partnership (LP): When title to the property is held by an LLC or LP, the time the property was titled in the name of the LLC or LP may be included in the six-month requirement provided: ❑ At least one Borrower must have been the majority owner or had control of the LLC or LP since the date the property was acquired by the LLC or LP, and ❑ Title must be transferred from the LLC or LP into the Borrower’s name on or before the Note Date Note: Special purpose cash-out refinance Mortgages must comply with the ownership requirement for the Mortgaged Premises in Section 4301.6. Exception: If none of the Borrowers have been on title to the Mortgaged Premises for at least six months prior to the Note Date of the cash-out refinance Mortgage, the requirement(s) in the following table must be met and documented in the Mortgage file: Exceptions to the six-months on title requirement Scenario Requirements Inheritance or legal award At least one Borrower on the refinance Mortgage inherited or was legally awarded the Mortgaged Premises in accordance with a final judgment or decision from a legal body (e.g., court, jury, judge or arbitrator) such as in a case of divorce, separation or dissolution of a domestic partnership Delayed financing For delayed financing, all of the following requirements must be met: ■ The Settlement/Closing Disclosure Statement or an alternative form required by law from the purchase transaction must reflect that no financing secured by the subject property was used to purchase the subject property. A recorded trustee’s deed or equivalent documentation may be used when a Settlement/Closing Disclosure Statement or an alternative form required by law was not used for the purchase transaction. ■ The preliminary title report for the refinance transaction must reflect the Borrower as the owner of the subject property and must reflect that there are no liens on the property ■ The source of funds used to purchase the subject property must be fully documented ■ If funds were borrowed to purchase the subject property: ❑ Cash-out proceeds must be used to pay off or pay down the borrowed funds, as reflected on the Settlement/Closing Disclosure Statement for the refinance transaction ❑ Additional cash-out is permitted only when all borrowed funds are paid in full ❑ The payment on any remaining outstanding balance of the borrowed funds must be included in the debt payment-to-income ratio as described in Section 5401.2 ■ The amount of the refinance Mortgage must not exceed the sum of the original purchase price and related Closing Costs as documented by the Settlement/Closing Disclosure Statement or an alternative form required by law for the purchase transaction, less any gift funds used to purchase the subject property. A recorded trustee’s deed or equivalent documentation may be used when a Settlement/Closing Disclosure Statement or an alternative form required by law was not used for the purchase transaction. ■ There must have been no affiliation or relationship between the buyer and seller of the purchase transaction

(c) Cash-out refinance Mortgage paying off a First Lien Mortgage When a cash-out refinance Mortgage is used to pay off an existing First Lien Mortgage, the following requirements apply: ■ A cash-out refinance Mortgage must meet the Borrower requirements in Section 4301.2 ■ When proceeds of a cash-out refinance Mortgage are used to pay off a First Lien Mortgage, the First Lien Mortgage being refinanced must be seasoned for at least 12 months (i.e., at least 12 months must have passed between the Note Date of the Mortgage being refinanced and the Note Date of the cash-out refinance Mortgage), as documented in the Mortgage file (e.g., on the credit report or title commitment) Exceptions: The 12-month seasoning requirement for the Mortgage being refinanced does not apply when: ■ The cash-out refinance Mortgage is a special purpose cash-out refinance Mortgage that meets the requirements in Section 4301.6, ■ The First Lien Mortgage being refinanced is a Home Equity Line of Credit (HELOC), ■ The cash-out refinance Mortgage is a Construction to Permanent Mortgage or Renovation Mortgage, or ■ The purpose of the cash-out refinance Mortgage is to convert the Manufactured Home to legally classified real property under applicable State law

(d) Cash-out refinance Mortgage on a property owned free and clear A Mortgage placed on a property previously owned free and clear by the Borrower is considered a cash-out refinance Mortgage. Exceptions: ■ CHOICERenovation® Mortgages when proceeds are used only to finance the eligible renovations, as described in Section 4607.6, are considered “no cash-out” refinance Mortgages. See Section 4607.4(b) for additional information regarding the use of proceeds. ■ GreenCHOICE Mortgages® are considered “no cash-out” refinance Mortgages when proceeds are used only to finance eligible improvements, as described in Section 4606.1(b), and must comply with all other requirements

(e) Credit Fees The Seller must refer to Exhibit 19, Credit Fees, for Credit Fees related to certain cash-out refinance Mortgages. Credit Fees are paid in accordance with the Credit Fee provisions stated in Chapter 6303.