Fannie's Refinance Requirements for Seasoning, Title and "Continuity of Obligation".

Mortgage and Lending

Fannie Mae REFINANCE POLICIES revised: just looking at this stuff is scary, ladies and gentlemen. Fannie has seen all of the tricks in the book such as making a purchase look like a refinance, for instance. (It's a great way to get rid of those nasty down-payment requirements.)

Or making a cash-out look like a no cash-out. (After all, the no cash-out LTVs are higher, qualifying is easier, and int rates much better)

As a result, Fannie has come up with some fairly complex rules. They're attempting to allow the legitimate transactions, yet ensure that a purchase is a purchase and a no cash-out is a no cash-out. And surprisingly, I think they did a pretty good job!

Ill list here the new rules. It has been a little difficlt in th epast trying to figure out how to work these " out of the box" deals (almost all deals nowadays) but these rules will put things back into a A type - B type deal.

•1.  Cash-Out Refi, Own 6 Months - This rule is exactly the same as Freddie's; it's clean and easy to remember. No cash-out refis unless you've owned the home for six months. Flat out.

•2.  Lien Seasoning - This makes sense. You can't originate a cash-out refi, then turn around in less than six months and re-originate the same loan into a (cheaper) no cash-out. The rule is the same with Freddie.

•3.  Continuity of Obligation (C of O) - Checking C of O (my own abbreviation) must be the very first thing that you do when you are structuring a refinance transaction. To have C of O, notice that the property must have a lien. If it does, just check down the list. If one of the items applies, you are home free.

•4.  No C of O, Has Lien - Ah ha! If you can't fit your borrower into one of the categories from the C of O list, something screwy is going on. At least that's what Fannie thinks, and you're limited to 50% LTV assuming the client was on the title for at least six months.

•5.  No C of O Because No Lien - If there is no lien, there is no continuity of obligation. An example is if your client purchased with cash. Bottom line, the loan is ineligible for the first six months. From 6 to 12 months use the lesser of the purchase price or appraised value for LTV, and after that you're okay.

Between 6 and 12 months, you MUST get a HUD-1 to verify the original purchase price.

•6.  Listing - This is the very first time that either Fannie or Freddie has made actual rules about a home with prior listings. Every other rule came from the underwriter or the lender.

I can tell you for sure that if the appraiser takes a photo of the home and there is a For Sale sign in front of it  the home's not eligible for a refinance.

•7.  Title = Ownership - Whenever Fannie refers to ownership, the reference is to whomever has title.

Freddie Mac's Take - Freddie's the same when it comes to 6 month seasoning for cash-outs and 6-month lien seasoning (#2). So far, however, Freddie hasn't identified anything close to continuity of title requirements.

Comments (15)

Nancy Larson
I am a licensed referral agent in NJ - Hutchinson Island, FL

Well, so Freddie and Fannie seem to have become twins rather than just sibligs?

Oct 15, 2008 08:58 AM

Not sure what all these means...

if I just bought a home and the interest dropped, does that mean I cannot refinance?  Or just no cashout refinance?

Oct 28, 2008 05:22 PM
Brian Atallian



Even if a borrower has owned a property for 6 months but the title has remained in the name of thier LLC.  Once they move it from the LLC to thier personal names, this is when the clock starts to tic....correct???

Nov 02, 2009 10:51 AM
Brian Atallian

Even if a borrower has owned a property for 6 months but the title has remained in the name of thier LLC.  Once they move it from the LLC to thier personal names, this is when the clock starts to tic....correct???

Nov 02, 2009 10:53 AM
Sunny Group Movement Mortgage
Biloxi, MS

Edgar, what the rule is trying to prevent is a borrower getting a cash out refinance which is a more expensive loan, (meaning there are hits to the rate/premium  for a cash out) and then within the first six months refinance with a no cash out loan at a lower rate.  I assume they did not consider the fact that two loan closings within six months would be cost prohibitive and recovering the cost in a rate differential would probably take a number of years.

Brian, is the LLC owned 100% by the borrower?


Nov 05, 2009 09:08 AM

Does this rule apply if you were gifted a property free and clear and only been on title for two months?

Jan 07, 2010 11:00 AM
Rex Allen

What is the answer to Brian's question? LLC to nature person member of 100% shares still has to wait 6 months?

Aug 16, 2010 01:08 PM
Dannette Maddux

OK, I have a SFD cash out refi. The father decided one day he did not want to live in his house anymore, as the mother had died. So he called his daughter and said "you can have the house" no money changed hands nothing. The father did not do a purchase contract, but went to his lawyer and had a deed drawn up where he deeded the property into the daughters name. The daughter has lived there since March of 2011 (three days after the property was deeded to her). She nows wants to do a cash out refinanced and fix the driveway, put in a water softner and some updates to the kitchen. LTV is 48.8%. I received my approval and because of this seasoning requirement, the lender will not allow this to close until September. Would this not be looked at as a gift and there for negates the seasoning requirement? Also, if the father did a purchase contract dated for March could we not do this as a purchases, where she would have quit claim back to him and then deed to her at closing table. Doing the purchase as a gift of equity?


Thanks so much for your help

Aug 25, 2011 06:34 AM
Sunny Group Movement Mortgage
Biloxi, MS

Wow Dannette, that is really a hard one.  The bottom line is that it is hard to undo what was done.  Any underwriter I have ever worked with is not going to accept the transfer of the property to the seller and then consider it a purchase.  Understandably this is what should have happened but it did not.   Regardless of whether or not the property was gifted to the current owner, to my knowledge there is no exception to seasoning when property is free and clear and gifted.  Actually the only exception is the "Delayed financing exception" which does not apply here as it must be arms length, you must supply proof of what was paid for the property and the source of those funds, etc.  I am sorry, but it looks like you will have to wait.  Good luck,      

Aug 25, 2011 10:14 AM
Sunny Group Movement Mortgage
Biloxi, MS

Rex, just saw your question.  If he owns the LLC 100% and can document that, the underwriter should be ok, but it is at her discretion.    

Aug 25, 2011 10:22 AM

Newly married; husband wants to refi house and wife wants to be added to mortgage and deed.  Told that Fannie and Freddie require her to be on the deed for six months for this straight refi.  Is this correct?

Feb 10, 2012 02:00 AM
Wade Lester

Okay im looking for a Mortage Guru here to help me.

This is my situation for which i ran by my lender prior to doing the Deal.

I had to purchase a foreclosure quickly and could not wait for a full mtg deal to get started on the rehab.


I went to my bank and got a quick bank loan for 80% of pprice.  I then in 3 weeks remodeled house to make it livable with cash 50k as my primary residence.  pprice $205k  lien$170k  total aquisition cost $255k


i then proceed to my lender to whom already new the deal and said no problem,  preapproved

780 score no debt, no problem

appraisa; came in at 307k

all im asking for is refi of 80% of my aquisition cost  loan amount of 204k 


Denied becasue hasnt been 6 months and as i read the rules that only applies to cash out refi not rate/term refi which has no seasoning.  As i see it and as my lender locked my rate its a rate/term refi


Can someone please help me with this



Aug 09, 2012 05:56 AM
E. W. Lester
Mort Genius Brands - Fayetteville, GA

You write about a delayed financing exception in your Comment #10. Does Comment #13 describe such an exception?

He used cash and a temp loan to acquire = $205,000. He paid out real costs of another 50K. It's been less than 6 months but why does that matter here?

These two should be considered the price paid and he should be getting loan offer of 80% of $255K... right?

I've been retired for awhile after long career as MLO. These used to be "take out loans."

Aug 09, 2012 06:53 AM
Mike Ameel

I made a loan (2nd TD) to someone and had to foreclose.  I got the property back with an existing first trust deed on it.  This was over 4 years ago.  I wrote a letter to the lender and they added my name to the loan.  I had cured the default of the loan, property taxes, association dues, legal and foreclosure fees etc.!  The lender sent me payment coupons and year end statements.  They the loans servicing went from Green Point to Countrywide to Bank of America to LBPS and finally to Seterus.  When it got to Seterus they wrote to me and said they wouldnt be providing any information to me because my name was not on the loan.

I just finished refinancing 3 of my properties yesterday but was unable to refinance this one due to the continuity fo obligation rule.  It doesn't make sense as I am not asking for any cash from the transaction only to reduce my interest rate.  Any ideas?

Nov 02, 2012 03:12 AM
joanne bragg

my mother in law wants to refinance her house. she has owned it for 30 yrs free and clear. but she put the property in a trust this year with my husbad as trustee.  she wants to get cash out for home improvement and home health care and now the lender sasy she does has not owned the property for the last 6 months so can not get cash out. for seaoning requirements


how can this be right?  the trsut owns the property put she owns the trust.  


Is this true?

Oct 17, 2013 08:04 AM