The full explanation
Under Fannie Mae's rules, the new loan is a first mortgage on the same home that pays off any existing mortgages, or a new mortgage on a home that is owned free and clear. According to FHFA's Office of Inspector General, Fannie Mae and Freddie Mac place no restrictions on how the cash is used. Your debt goes up and the home remains the collateral.
An example
Lucía needs to fix her roof. Her lender offers her a cash-out refinance. Before deciding, she compares how much she would owe in total, and for how long, with other ways to pay for the repair.
You will see it in…
- Refinance offers (“cash-out refi”)
- The Loan Estimate, in the loan purpose (Purpose: Refinance)
- The Closing Disclosure, in the cash at closing (“Cash to Close”)
