When it comes to a Special Purpose Cash-Out Refinance, it’s essential to know how the guidelines differ between Fannie Mae and Freddie Mac, especially if you’re dealing with a buyout situation due to a divorce, separation, or change in ownership.
What Is a Special Purpose Cash-Out?
A Special Purpose Cash-Out Refinance is typically used when one co-owner is buying out the other co-owner of a property. This is common in:
- Divorce or legal separations
- Partnership dissolutions
- Family transfers or buyouts
Unlike standard cash-out refinances, the borrower is not receiving cash for general use. The funds are going to another party that is relinquishing ownership.
Fannie Mae Guidelines
Fannie Mae allows a bit more flexibility in ownership and living arrangements:
- All owners must have owned the property together for at least 12 months, unless the ownership change is due to divorce, legal settlement, or a similar life event
- No restrictions on occupancy — the owners do not have to have lived in the property
- No property type restrictions — applies to a broad range of properties
This is often the preferred route when owners haven’t all lived in the home or when dealing with investment properties.
Freddie Mac Guidelines
Freddie Mac’s rules are more restrictive in this case:
- All owners must have lived in the property together as their primary residence for the past 12 months
- The transaction must meet the definition of a true buyout of an occupant-owner
If all co-owners haven’t shared the home as their primary residence for at least a year, Freddie Mac will not permit a Special Purpose Cash-Out.
What Both Agencies Require
Despite their differences, Fannie Mae and Freddie Mac share key requirements:
- No cash can be given back to the remaining borrower
- A written letter of intent must outline the reason for the buyout
- Specific terms of the agreement between the parties involved must be documented clearly
These safeguards are in place to ensure the refinance serves a special purpose and is not used for unrestricted cash access.
How We Can Help
As a mortgage broker with access to both Fannie Mae and Freddie Mac lending channels, we can:
- Assess which agency is the best fit for your unique scenario
- Connect you with wholesale lenders for faster approvals and better terms
- Guide you through the documentation required to meet agency guidelines
Contact us to learn how a Special Purpose Cash-Out Refinance could work in your situation, and which agency’s guidelines align best with your needs.
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