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Fannie vs. Freddie – Cash-Out Waiting Period for Property in Trust
Question:
Can the time the property was held in the trust be counted toward the six-month ownership requirement for cash-out if the borrower is the trustee or the only beneficiary?
Answer:
Freddie Mac does not address this type of ownership and only addresses time held in an LLC, where time held by the entity counts if the borrower is the majority owner during that time.
Fannie Mae, on the other hand, does address time held in an inter vivos revocable trust in its guidelines.
Specifically, this:
If the property was owned by an inter vivos revocable trust prior to closing, the time held by the trust may be counted toward meeting the borrower’s six-month ownership requirement if the borrower is the trust’s primary beneficiary.
Remember this important requirement for a cash-out refinance as well:
The above ownership policy applies in addition to the requirement that an existing first mortgage being paid off through the refinance is at least 12 months old.
Summary for Your Scenario:
For Fannie Mae, the time held in the trust counts toward the six-month seasoning requirement as long as the borrower is the primary beneficiary. The underlying lien (if any) must be at least 12 months old for a cash-out refinance.
Trustee Requirement: The selling guide does not state that the borrower must be the trustee to count this time. It only specifies that the borrower must be the primary beneficiary. The guides do not address an “and” or “or” scenario, leaving that interpretation to a lender/underwriter.
For Freddie Mac, the guidelines do not explicitly state that time held in a trust counts toward the six-month seasoning in the same way they do for LLCs. You would need to rely on standard title seasoning for an individual with Freddie Mac, and the underlying lien (if any) must be at least 12 months old for a cash-out refinance.
Mortgage Guideline Supporting Resources – Title Changes Waiting Periods – Refinances – All Agency Comparison Chart found under “Guideline References” in “Charts & Checklists”.
Submit Your Loan Scenario Question at www.mortgageguidelines.com