Divorce is already an emotional and challenging process, and figuring out how to handle property settlements can add another layer of stress. If you’re looking for a way to buy out your ex-spouse’s share of your home, a limited cash-out refinance under Fannie Mae guidelines could be the ideal solution. This approach simplifies the settlement process, keeps costs lower, and provides more flexibility compared to traditional refinancing methods. Let’s dive into how this works and why it could be the right choice for your situation.

A limited cash-out refinance allows you to refinance your mortgage to pay off your ex-spouse’s interest in the home as part of a legal divorce settlement. Unlike a typical cash-out refinance, this type of loan remains under rate-and-term refinance guidelines, which means fewer restrictions and lower costs. Here’s why this matters:

Higher Loan-to-Value (LTV): You can refinance up to 95% of the property’s value, even in high-balance loan areas. Lower Costs: Limited cash-out refinances come with lower fees and points than cash-out refinances. Simpler Process: It’s treated like a standard refinance, so you avoid some of the stricter requirements tied to cash-out transactions. This type of refinancing is designed to make divorce-related property buyouts as seamless as possible, ensuring you can meet your legal obligations without overcomplicating the process.

To use a limited cash-out refinance for a divorce buyout, you need to meet a few straightforward conditions. Fannie Mae has specific rules to ensure the loan is being used for its intended purpose.

Documented Legal Agreement: The buyout amount must be detailed in a divorce decree, separation agreement, or other legally binding document. Specific Settlement Amount: The amount of money being withdrawn through the refinance must match the agreed-upon buyout figure. No additional funds can be taken out for other purposes. No Additional Cash: Borrowers cannot take any cash out of the refinance beyond what is required to settle the divorce agreement. When these conditions are met, the loan will remain under rate-and-term guidelines, which keeps costs lower and makes the process smoother.

Even though you’re withdrawing money to buy out your ex-spouse’s share, Fannie Mae does not classify this as a cash-out refinance as long as the above criteria are met. Instead, it falls under rate-and-term refinancing guidelines, which offer significant advantages.

Higher LTV Limits: With a limited cash-out refinance, you can refinance up to 95% of your home’s value, compared to stricter LTV caps on traditional cash-out refinances. Lower Rates and Fees: Rate-and-term refinances typically have better terms than cash-out options, saving you money over the life of your loan. This distinction can make a big difference, especially if you’re already navigating the financial strain of a divorce.

If you’re considering how to settle a divorce buyout, here’s why a limited cash-out refinance could be your best bet. You’ll pay fewer fees and get better rates compared to cash-out refinances. With access to up to 95% of your home’s value, this option allows you to complete the buyout without stretching your finances too thin. Since it’s treated as a rate-and-term refinance, the approval process is simpler and faster.

This approach is not just about saving money; it’s about simplifying an already complex situation. By leveraging Fannie Mae’s guidelines, you can keep your focus on what matters most—moving forward.

If you’re navigating a divorce and need help structuring your property buyout, a limited cash-out refinance could be the perfect solution. Get a free mortgage rate quote today and let’s work together to find the right path for you!