The Agency Rule That Decides What Your Buyout Costs
Program and regulatory figures verified October 10, 2026. Details change; confirm your scenario with us.
This is the single most valuable paragraph in American mortgage guidance for someone going through a divorce, and almost nobody quotes it accurately.
The rule, verbatim
From Fannie Mae Selling Guide B2-1.3-02, under the heading "Refinances to Buy Out An Owner's Interest":
"A transaction that requires one owner to buy out the interest of another owner (for example, as a result of a divorce settlement or dissolution of a domestic partnership) is considered a limited cash-out refinance if the secured property was jointly owned for at least 12 months preceding the disbursement date of the new mortgage loan. All parties must sign a written agreement that states the terms of the property transfer and the proposed disposition of the proceeds from the refinance transaction."
★★ Why the classification matters
A refinance is priced and underwritten differently depending on whether it is a limited cash-out (often called rate-and-term) or a cash-out. Cash-out carries different pricing and different loan-to-value treatment.
★★ In a buyout you are paying real money to a real person, so it feels like cash-out. The guide says that where the money is buying out a co-owner under an agreement, it is not treated that way. ★ The same section lists "buying out a co-owner pursuant to an agreement" among the permitted uses of a limited cash-out.
★ We publish no rates and no payment figures anywhere on this site, so we are not going to put a number on the difference. Your loan officer can price both against your actual file.
★ The conditions and allowances, in one place
| Item | What the guide says |
|---|---|
| ★★★ How the loan is classified | ★★★ limited cash-out, not cash-out |
| ★★★ Joint-ownership condition | ★★★ 12 months preceding the disbursement date |
| ★★★ Written agreement | ★★★ all parties sign, stating the transfer terms and the disposition of the proceeds |
| ★ Cash back permitted | the greater of 1% of the new loan amount or $2,000 |
| ★★ On-title seasoning if you were awarded the home | ★★ "no waiting period", the usual six months does not apply |
★★★ Trap one: twelve months to disbursement
Read the words again: "jointly owned for at least 12 months preceding the disbursement date of the new mortgage loan."
★★★ Three things follow, and all three catch people:
- It is measured to disbursement, not application. A file that applies at month eleven does not qualify by applying early. It qualifies by funding after month twelve.
- It is joint ownership, not marriage and not occupancy. A couple married fifteen years who bought this particular house ten months ago do not meet it.
- It is a condition of the treatment, not of the loan. Short of twelve months the loan may still be available, as a cash-out.
★★ What that does to a settlement timetable, and the one case where waiting is wrong.
★★★ Trap two: the decree may not be enough
The guide asks for a written agreement signed by all parties stating two things: the terms of the property transfer, and the proposed disposition of the proceeds from the refinance.
★★★ A judgment that awards the house to one spouse and is silent about where the refinance money goes addresses the first and not the second. On its face that does not meet the condition.
★★ This is the cheapest problem in divorce lending to prevent and one of the most annoying to fix, because fixing it means going back to the other side, and their signature, after everyone thought they were finished. What to ask your attorney to include.
★★ The related rule people conflate with it
Selling Guide B2-1.3-03 deals with being on title. Normally a borrower must have been on title for six months before disbursement on a cash-out. But:
"There is no waiting period if the lender documents that the borrower … was legally awarded the property (divorce, separation, or dissolution of a domestic partnership)."
★★ And the twelve-month seasoning of the loan being paid off "does not apply … when buying out a co-owner pursuant to a legal agreement."
★★★ Note the asymmetry, because it is genuinely confusing: one rule imposes a twelve-month joint-ownership condition to get the better treatment; the other removes a six-month on-title wait for someone awarded the property. They answer different questions and are routinely merged into a single wrong sentence.
★ What this page does not tell you
- ★★ Whether your lender will apply it. These are Fannie Mae requirements. Individual lenders add overlays, and a loan that is not sold to Fannie Mae follows different rules. Ask.
- ★★ Whether it reaches your loan size. Above your county's conforming limit this is a jumbo transaction and the agency rule does not apply. In parts of California that is the typical house. Where
- What it costs. No rates, no payment figures, anywhere on this site.
- ★ What your settlement should say. We are a lender, not your attorney. We tell you what the financing needs; your counsel drafts it.
Mike Certo, NMLS #260555. (480) 296-6513 · mcerto@cfmtg.com. Verified against the Selling Guide 2026-10-10; agency requirements change.
Frequently asked questions
Is a divorce buyout a cash-out refinance?
Not under Fannie Mae's rule, if two conditions are met. Selling Guide B2-1.3-02 treats a buyout of another owner's interest, for example as a result of a divorce settlement, as a limited cash-out refinance where the property was jointly owned for at least 12 months preceding the disbursement date and all parties sign a written agreement covering the transfer terms and the disposition of the proceeds.How much cash back can I take on a limited cash-out refinance?
Fannie Mae permits cash back to the borrower in an amount that in aggregate does not exceed the greater of 1 percent of the new refinance loan amount or $2,000.Do I have to wait six months on title to refinance after a divorce?
Not if you were awarded the property. Selling Guide B2-1.3-03 states there is no waiting period where the lender documents that the borrower was legally awarded the property through divorce, separation or dissolution of a domestic partnership, which is an exception to the usual six-month on-title requirement.Does the Fannie Mae buyout rule apply to a jumbo loan?
No. It is an agency requirement, so it governs loans delivered to Fannie Mae. A buyout above the county conforming limit is a jumbo transaction priced by investor overlays instead, which matters in California where several metros have typical values near or above the highest conforming limit.Mike Certo · NMLS #260555 · Cornerstone First Mortgage NMLS #173855 · Equal Housing Lender. Educational content about mortgage financing during and after a divorce. Not a loan commitment, and not legal, tax or financial advice. Cornerstone First Mortgage is a lender; it is not a law firm, does not represent any party to a dissolution, does not make attorney referrals, and takes no position on how property should be divided. California property-division rules are set by the Family Code and applied by the courts; the reassessment exclusion in Revenue and Taxation Code section 63 is administered by county assessors. Agency requirements described here are Fannie Mae Selling Guide provisions current as of the date shown and are subject to change and to lender overlays. Housing market figures describe the twelve months to August 2026 and are not a forecast. All loans are subject to borrower, property and program qualification.