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

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

4301.5: Cash-out refinance Mortgages (02/04/26) 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 Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-8 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 Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-9 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, Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-10 ■ 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. Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-11 4301.6: Special purpose cash-out refinance Mortgages (06/04/25) A special purpose cash-out refinance Mortgage is a cash-out refinance Mortgage where the owner of a property uses the proceeds to buy out the equity of a co-owner. A special purpose cash-out refinance Mortgage must meet the loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratio requirements for cash-out refinance Mortgages in: ■ Section 5703.8(a) for Mortgages secured by a Manufactured Home ■ Section 4203.1(b) for all other Mortgages A special purpose cash-out refinance Mortgage must meet all requirements of the Guide that apply to cash-out refinance Mortgages, except as specifically modified below. This section contains requirements related to: ■ Allowable uses of proceeds from a special purpose cash-out refinance Mortgage ■ Special Borrower requirements ■ Documentation requirements ■ Credit Fees (a) Allowable uses of proceeds from a special purpose cash-out refinance Mortgage The loan amount of a special purpose cash-out refinance Mortgage is limited to amounts used to buy out the equity of the co-owner, which may include: ■ Paying off the first Mortgage, regardless of age ■ Paying off junior liens secured by the Mortgaged Premises. Note: The Borrower is not required to satisfy outstanding junior liens secured by the Mortgaged Premises if the requirements of Section 4204.1 for Mortgages with secondary financing and/or Section 4204.2 for Affordable Seconds®, are met. ■ Paying related Closing Costs (b) Special Borrower requirements The following requirements must be met: Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-12 ■ The Borrower and the co-owner receiving the buy-out proceeds must have jointly owned the property for a minimum of 12 months prior to the initial loan application. (Parties who inherited an interest in the property are exempt from this requirement.) ■ The Borrower and the co-owner receiving the buy-out proceeds must provide evidence that they occupied the subject property as their Primary Residence. (Parties who inherited an interest in the property are exempt from this requirement.) ■ The Borrower and the co-owner receiving the buy-out proceeds must provide a written agreement, signed by all parties, stating the property transfer terms of the property transfer and disposition of the refinance proceeds ■ The Borrower who retains sole ownership of the property may not receive any of the proceeds from the refinance transaction (c) Documentation requirements The Seller must retain the following in the Mortgage file: ■ Documentation evidencing that the Borrower and the co-owner jointly occupied the Mortgaged Premises as their Primary Residence, if applicable ■ A copy of the written agreement stating the terms of property transfer and the disposition of the refinance proceeds (d) Credit Fees The Seller must refer to Exhibit 19, Credit Fees, for Credit Fees related to special purpose cash-out refinance Mortgages. Credit Fees are paid in accordance with the Credit Fee provisions stated in Chapter 6303. Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-13 4301.7: Texas Equity Section 50(a)(6) Mortgages (11/19/25) This section contains requirements related to: ■ General requirements for Texas Equity Section 50(a)(6) ■ Eligible Mortgages ■ Refinances of Texas Equity Section 50(a)(6) Mortgages ■ Mortgaged Premises; appraisal; fair market value ■ Loan-to-value (LTV) and total LTV (TLTV) ratios ■ Eligibility to sell and service Texas Equity Section 50(a)(6) Mortgages ■ Texas Equity Uniform Instruments and other documents ■ Special representations and warranties ■ Specific remedies ■ Related provisions (a) General requirements for Texas Equity Section 50(a)(6) The generally accepted commercial terms used to describe Mortgages originated under Article XVI of the Texas Constitution (“cash-out refinance”, “rate-term refinance”) may not correspond to the meaning given the same or comparable terms when used in Chapter 4301. Sellers must understand the distinctions between Freddie Mac’s refinance definitions in Chapter 4301 and the provisions of Section 50(a)(6) and are responsible for determining: ■ When Section 50(a)(6) applies, regardless of the definitions of cash-out and “no cash out” refinance transactions used in Chapter 4301 ■ Whether the proposed refinance of a Mortgage secured by the Borrower’s homestead in the State of Texas is a Mortgage that must be originated pursuant to Section 50(a)(6) of Article XVI of the Texas Constitution (b) Eligible Mortgages A Texas Equity Section 50(a)(6) Mortgage must be: Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-14 ■ A conventional First Lien Mortgage that is a: ❑ Fixed-rate Mortgage, or ❑ 3/6-Month, 5/6-Month, 7/6-Month or 10/6-Month ARM ■ A cash-out refinance Mortgage as described in Section 4301.5 or a “no cash-out” refinance Mortgage as described in Section 4301.4, depending on the applicable facts A Texas Equity Section 50(a)(6) Mortgage may not be a special purpose cash-out refinance Mortgage. (c) Refinances of Texas Equity Section 50(a)(6) Mortgages Sellers may refinance a Texas Equity Section 50(a)(6) Mortgage into: ■ Another Texas Equity Section 50(a)(6) Mortgage, or ■ A refinance Mortgage permitted by Section 50(a)(4) of Article XVI of the Texas Constitution (a “Section 50(a)(4) Mortgage”) Note: Section 50(a)(4) Mortgages used to pay off a Texas Equity Section 50(a)(6) Mortgage and meeting all applicable Texas Constitutional requirements are not subject to the requirements of this section and are eligible for sale to Freddie Mac as “no cash-out” refinance Mortgages, provided all requirements of Section 4301.4 are met. (d) Mortgaged Premises; appraisal; fair market value Each Mortgage must be secured by a Mortgaged Premises that is: ■ A 1-unit Primary Residence, ■ Located in the State of Texas, and ■ The Borrower’s homestead A Living Trust that meets the eligibility requirements of Section 5103.5 may be a Borrower for a Texas Equity Section 50(a)(6) Mortgage if the Living Trust also meets the requirements for a “qualifying trust” under Texas law for purposes of owning residential property that qualifies for the homestead exemption. The Seller must provide an appraisal that: ■ Meets Freddie Mac requirements, and Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-15 ■ Complies with Section 50(a)(6)(Q)(ix) and Section 50(h) of Article XVI of the Texas Constitution To meet the requirements for acknowledgment of fair market value, the Seller must: ■ Along with the owner of the homestead, execute a written acknowledgment of the “fair market value” of the homestead property as of the date the extension of credit is made ■ Attach the appraisal report to the acknowledgment (e) LTV and TLTV ratios The maximum LTV and TLTV ratios for Texas Equity Section 50(a)(6) Mortgages must not exceed 80% and must be lower if necessary to comply with the LTV/TLTV ratio requirements of Sections 4203.1(b) and 4301.4 for “no cash out” and cash out refinances, as applicable. (f) Eligibility to sell and service Texas Equity Section 50(a)(6) Mortgages Unless otherwise notified in writing, Sellers are eligible to deliver Texas Equity Section 50(a)(6) Mortgages. The Servicer must be eligible to service Texas Equity Section 50(a)(6) Mortgages in accordance with Section 8104.1(a) and related Servicing provisions. (g) Texas Equity Uniform Instruments and other documents Texas Equity Section 50(a)(6) Mortgages must be originated using the most recent version of the following special Fannie Mae/Freddie Mac Texas Home Equity Uniform Instruments: Texas Equity Uniform Instruments and other required forms Instrument type Required forms Note ■ Texas Home Equity Note (Fixed Rate - First Lien) - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3244.1 ■ Texas Home Equity Fixed/Adjustable Rate Note – 30-day Average SOFR (First Lien) Form 3442.44 Security Instrument Texas Home Equity Security Instrument (First Lien) - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3044.1 Rider Texas Home Equity Fixed/Adjustable Rate Rider – 30-day Average SOFR (First Lien) Form 3142.44 Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-16 Seller may access the Fannie Mae/Freddie Mac Texas Home Equity Uniform Instruments at https://sf.freddiemac.com/tools-learning/uniform-instruments/overview. The Seller must prepare, obtain and/or provide any and all other documentation that the Seller determines is necessary to originate Texas Equity Section 50(a)(6) Mortgages in compliance with all applicable laws. (h) Special representations and warranties Seller represents and warrants that: 1. Neither the Seller nor its Correspondents or Mortgage Brokers have been found by any federal regulatory agency to have engaged in the practice of refusing to make loans because the applicants for the loans reside in a certain area or the property proposed to secure the loans is located in a certain area 2. All refinance Mortgages that fall within the provisions of Section 50(a)(6) of the Article XVI of the Texas Constitution have been originated as Texas Equity Section 50(a)(6) Mortgages and comply with Section 50(a)(6) of Article XVI and related provisions of the Texas Constitution, as amended, and all other applicable laws. Note: Freddie Mac recommends that the Seller obtain advice from Texas legal counsel that confirms that the Seller’s lending and servicing policies, procedures and practices are in compliance with Section 50(a)(6) of Article XVI of the Texas Constitution, all other applicable Texas Constitutional provisions, statutes, court decisions, regulations and rules and applicable State and federal law. 3. The estate or interest in the Mortgaged Premises is vested in the Borrower. There is no defect in the Borrower’s title to the Mortgaged Premises. 4. The Mortgage is a valid and enforceable First Lien on the Mortgaged Premises Borrower Affidavit Texas Home Equity Affidavit and Agreement (First Lien) - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3185. The affidavit must be recorded together with the Security Instrument and any applicable riders. Condominium Rider Texas Home Equity Condominium Rider - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3140.44, if the property is a Condominium Unit Planned Unit Development (PUD) Rider Texas Home Equity Planned Unit Development Rider - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3150.44, if the property is in a PUD Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-17 (i) Specific remedies Any action taken, or not taken, in connection with the origination of a Texas Equity Section 50(a)(6) Mortgage that results in any of the following (even if such action is a result of lender’s effort to cure a failure to comply with the provision of the Section 50(a)(6)) is a breach of the representations and warranties in this Section 4301.7, and Freddie Mac shall be entitled to any of the remedies stated in Section 3601.1, including the right to require the Seller to repurchase the Mortgage immediately upon Freddie Mac’s request, at a price determined in accordance with Section 3602.2(c): ■ A forfeiture of any principal or interest due under the Mortgage ■ The invalidation of the Mortgage as a First Lien ■ The abatement of accrual of interest and the Borrower’s obligations under the Mortgage ■ A reduction in the principal amount of the Mortgage ■ Any modification of the amount, interest rate, term or other provision of the Mortgage (j) Related provisions In addition to the requirements in this section, other requirements related to Texas Equity Section 50(a)(6) Mortgages are described in the following Guide provisions: Additional requirements related to Texas Equity Section 50(a)(6) Mortgages Topic Guide provisions Refinance Mortgages Chapter 4301 Title insurance Sections 4702.1, 4702.3 and 4702.5 Delivery requirements Section 6302.16 Special Servicing Sections 8104.1(a), 8201.1 and 9206.2(d) 4301.8: Refinance of Mortgages secured by properties subject to an energy retrofit loan (09/04/24) For the purposes of the Guide, a Property Assessed Clean Energy (PACE) or PACE-like obligation (either referred to as a “PACE obligation”) refers to any energy retrofit loan that is: ■ Used to finance energy efficiency improvements, and Freddie Mac Single-Family Seller/Servicer Guide Chapter 4301 As of 02/04/26 Page 4301-18 ■ Repaid through a property tax assessment For the “no cash-out” refinance of Mortgages secured by properties subject to PACE obligations that result in or provide for First Lien priority and where the PACE obligations are paid off with the Mortgage proceeds, the following requirements apply: ■ The new refinance Mortgage must be originated in accordance with the requirements of Section 4301.4 for “no cash-out” refinance Mortgages ■ The Mortgage being refinanced must be owned in whole or in part or securitized by Freddie Mac ■ The PACE obligation must be paid in full ■ The Mortgage file must include evidence that the obligation being paid off is a PACE obligation that results in or provides for First Lien priority ■ The Seller must deliver ULDD Data Point Investor Feature Identifier valid value “H61” when delivering a Freddie Mac-owned “no cash-out” refinance Mortgage used to pay a PACE obligation. See Section 6302.16(b)(ii) for more information. For the cash-out refinance of Mortgages secured by properties subject to PACE obligations and where the PACE obligations are paid off with the Mortgage proceeds, the following requirements apply: ■ The new refinance Mortgage must be originated in accordance with the requirements of Section 4301.5 for cash-out refinance Mortgages ■ If the PACE obligation results in or provides First Lien priority, the PACE obligation must be paid in full with the Mortgage proceeds Mortgages secured by properties that are energy efficient and are also subject to PACE obligations may be eligible for purchase under the provisions of Chapter 4606 for GreenCHOICE Mortgages®. Freddie Mac Single-Family Seller/Servicer Guide Chapter 4302 As of 04/12/26 Page 4302-1 Chapter 4302: Refi Possible® Mortgages 4302.1: Purchase of Refi Possible® Mortgages (08/30/21) Refi Possible® is a “no cash-out” refinance offering for low-income Borrowers originated in accordance with the Guide and this chapter.

Source: Freddie Mac Single-Family Seller/Servicer Guide Section 4301.5 — Cash-out refinance Mortgages · source URL · snapshot 5869ee9e606cd4ae