A Cash-Out Refinance is a refinance of any mortgage or a withdrawal of equity where no mortgage currently exists, in which the mortgage proceeds are not limited to specific purposes.
Nonprofit agencies, state and local government agencies and instrumentalities of government are not eligible for cash-out refinances.
Cash-out refinance transactions are only permitted on owner-occupied Principal Residences. The property securing the cash-out refinance must have been owned and occupied by the Borrower as their Principal Residence for the 12 months prior to the date of case number assignment.
In the case of inheritance, a Borrower is not required to occupy the property for a minimum period of time before applying for a cash-out refinance, provided the Borrower has not treated the subject property as an Investment Property at any point since inheritance of the property. If the Borrower rents the property following inheritance, the Borrower is not eligible for cash-out refinance until the Borrower has occupied the property as a Principal Residence for at least 12 months.
At least one Borrower must hold title to the property being refinanced prior to case number assignment.
Income from a non-occupant co-Borrower may not be used to qualify for a cash-out refinance.
The lender must document that the Borrower has made all payments for all their mortgages within the month due for the previous 12 months or since the Borrower obtained the mortgages, whichever is less. The payments for all mortgages secured by the subject property must have been paid within the month due for the month prior to mortgage Disbursement. Properties with mortgages must have a minimum of 6 months of Mortgage Payments.
Properties owned free and clear may be refinanced as cash-out transactions.
For additional information see Handbook 4000.1 II.A.8.d.i.(B)(1); II.A.8.d.ii.(B)-(C); II.A.8.d.v available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh