Ask The Experts: Question of the Week
Our loan scenario desk experts receive thousands of questions from our subscribers.
Our experts work in the field and have over 25 years of experience, which is why they are known for saving a lot of deals.
We hope you learn something new!
Cash-Back Limit Allowed on No-Cash Out/Limited Cash Out
Question:
What is the maximum cash-back allowed on Fannie Mae or Freddie Mac rate/term refinance so that we do not trigger a “cash-out” transaction?
Answer:
Fannie Mae limits this to the LESSER OF 2% of the new loan amount, or $2,000.
Reference – B2-1.3-02
However, Freddie Mac is more lenient and allows the GREATER OF 1% of the new refinance Mortgage or $2,000.
Reference – Section 4301.4
Example #1: $450,000 loan
Fannie Mae’s total is limited to $2000 because 2% is $9000, and their rule states the LESSER OF 2% or $2000!
Freddie Mac allows $4500 because they use the GREATER OF 1% or $2000.
So, in this example, the borrower could receive $4500 on a Freddie Mac loan or $2000 on a Fannie Mae loan without triggering a “cash-out” refinance.
Bottom Line: If your clients want a little cash back on a rate/term refinance, do the numbers to see which agency will benefit their needs.
MortgageGuidelines.com Subscribers can access our– Refinance – Max Cash Back to a Borrower – All Agency Comparison Chart, under “Charts & Checklists”.