Cash Out Refinancing


Cash Out Refinancing
On June 28th, 2011 Fannie Mae announced a guideline change pertaining to taking cash out on properties purchased within the previous 6 months – called the “Delayed Financing Exception”.

Previously Fannie Mae required 6 months to elapse between when a borrower purchases a home and applies for cash-out refinancing, however now cash out is permitted within 6 months of purchasing when no financing was obtained for the purchase of the home, given 4 requirements:

1. The new loan amount must not be more than the borrower’s initial investment in purchasing the home + you can finance closing costs, points & pre-paid items (i.e. escrow accounts). Initial investment is defined as the sales price, not the sales price + cost of improvements done to the property.
2. Purchase transaction must have been an arms length transaction, meaning the only relationship between the seller & purchaser had to arise out of the interest of purchasing that home, no prior relationship permitted.
3. The purchase transaction has to be documented by a certified HUD-1 showing no mortgage financing was used to purchase the home. A HUD-1 is not always used in a cash transaction, so make sure you are requesting one to be done or you’ll run into trouble with this part of the requirements.
4. The source of the funds for the purchase need to be documented, such as bank statements, a HELOC from another property, personal loan, etc. It also either needs to be seasoned for 60 days or from an acceptable source. Any financing that was used to for the purchase transaction will also need to be repaid with the proceeds of the new cash out refinance.

Web Reference: http://www.trulia.com/blog/shanethemortgageman/2011/07/…

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