Types of Transactions Generally Eligible

A purchase transaction is defined as a mortgage where the proceeds are used specifically to finance the acquisition of a property. This includes standard home buying as well as financing the acquisition and rehabilitation of a property, such as with renovation loans. Additionally, transactions that convert an interim construction loan into permanent financing are classified as purchase transactions if the borrower was not the owner of record of the lot prior to the first advance of construction funds. Generally, borrowers are not permitted to receive cash back from a purchase transaction, except for minor reimbursements for overpaid fees.

The distinction lies primarily in the use of funds. A limited cash-out refinance (or “no cash-out” refinance) is designed to pay off an existing first mortgage and potentially eligible subordinate liens used to purchase the home, with very little cash going to the borrower (typically capped at the lesser of 2% of the loan or $2,000). A cash-out refinance allows the borrower to tap into the property’s equity for any purpose, paying off debt that wasn’t used to purchase the home. Cash-out transactions generally carry higher risk and require the borrower to have held title for at least six months.

Yes, construction-to-permanent financing is an eligible transaction type designed to replace interim construction financing with a long-term mortgage. This can be structured as a single-closing transaction, where one loan covers both construction and the permanent phase, or a two-closing transaction involving two separate loans. For a single-closing transaction to be eligible, the borrower must hold title to the lot. These loans effectively streamline the process for borrowers building new homes and can be treated as purchase or limited cash-out refinance transactions depending on when the land was acquired relative to the application date.

Renovation mortgages, such as HomeStyle Renovation or CHOICERenovation, are eligible transactions that allow borrowers to finance home improvements. These can be structured as purchase transactions or refinances. The key feature is that the loan amount includes funds to cover the costs of repairs, remodeling, or energy improvements based on the “as-completed” value of the property rather than its current state. Lenders must ensure the renovation work is completed within a specific timeframe, typically 15 months, and funds are usually held in a custodial escrow account and disbursed as work progresses.

Yes, paying off an installment land contract (often called a contract for deed) is an eligible transaction. The classification depends on the timing. If the land contract was executed less than 12 months before the mortgage application, the transaction is generally treated as a purchase. If the contract has been in place for 12 months or more, it is typically treated as a limited cash-out refinance. This distinction is important because it dictates the maximum allowable loan-to-value ratio and the documentation required to verify the acquisition cost and payment history.

Specific refinance options exist to help borrowers pay off student loan debt. While paying off non-mortgage debt usually classifies a loan as a standard cash-out refinance, this specific transaction type may offer pricing waivers or flexibilities. To be eligible, the loan proceeds must be paid directly to the student loan servicer to pay off the debt in full; partial payments are generally not permitted. Additionally, at least one borrower on the mortgage must be obligated on the student loan being refinanced. This transaction allows borrowers to utilize home equity specifically to address educational debt.

Yes, loans secured by units in cooperative projects (co-op share loans) are eligible, provided the project meets specific standards. Unlike traditional mortgages secured by real property deeds, these loans finance the purchase of shares in a co-op corporation and the accompanying proprietary lease for the unit. Because of this unique structure, lenders must obtain special approval to deliver these loans. The transaction can be for a purchase or a refinance. The loan-to-value ratio calculation for co-ops often considers the unit’s pro-rata share of the corporation’s blanket mortgage in addition to the unit’s share loan.

A High Loan-to-Value (LTV) refinance is a specialized transaction option for borrowers who are current on their mortgage payments but have very little equity, often exceeding standard LTV limits for traditional refinances. To be eligible, the existing loan typically must be owned or securitized by the specific investor (e.g., Fannie Mae). These transactions are strictly limited to paying off the existing first mortgage and closing costs; no cash out is permitted. This option is designed to provide a benefit to the borrower, such as a lower interest rate or a more stable loan product.

Transactions involving manufactured homes are eligible if the home is legally classified as real property, meaning it is permanently affixed to a foundation and the land is owned by the borrower (or in a resident-owned community). Both purchase and refinance transactions are permitted. However, these transactions often have specific restrictions, such as slightly lower maximum loan-to-value ratios compared to site-built homes. Specialized programs like MH Advantage or CHOICEHome allow for higher ratios if the manufactured home meets specific design standards that make it comparable to traditional site-built housing.

Texas Section 50(a)(6) loans refer to cash-out refinance transactions secured by a borrower’s homestead in Texas. The Texas Constitution imposes unique and strict consumer protection requirements on these loans. For such a transaction to be eligible, it must comply with state laws, which include a maximum loan-to-value ratio of 80% (cumulative of all liens) and limitations on fees. Additionally, once a property has a Section 50(a)(6) loan, future refinances are subject to specific “once a home equity loan, always a home equity loan” rules unless specific conversion procedures are followed.