Cash-out refinance
Cash-out lets the borrower replace the current financing and take equity out, but the agency applies stricter seasoning, ownership, LTV and pricing rules.
Fannie acceptable uses
Fannie permits cash-out proceeds to pay off the existing first mortgage, pay eligible closing costs/prepaids, pay subordinate liens, and take equity out for any purpose, subject to the current cash-out rules.
Freddie definition
Freddie defines a cash-out refinance as a refinance with no specific restriction on the use of proceeds, subject to Section 4301.5 requirements.
DU/LPA still control risk
Cash-out is not automatically disqualified by a lower credit score because agency AUS-approved conventional loans do not have a blanket universal 620 minimum. Credit, LTV, reserves, pricing and AUS findings still matter.
Official guide baseline
Fannie Mae Selling Guide · Freddie Mac Seller/Servicer Guide
Refinance classification matters. A transaction that falls outside limited/no-cash-out rules may become cash-out even when the borrower receives little or no cash personally.