Mortgage Navigator • Conventional • Refinance

Subordinate liens & refinance classification

Paying off a second mortgage is not automatically limited/no-cash-out. The purpose and history of the subordinate lien matter.

Build My Mortgage Game Plan Conventional Navigator

Fannie

Under the Limited Cash-Out framework, eligible purchase-money subordinate financing can generally be included in the refinance. Paying off a non-purchase-money subordinate lien can instead push the transaction into cash-out unless another specific exception applies.

Freddie

Freddie's Section 4301.4 similarly restricts which junior liens may be paid off or paid down in a no-cash-out refinance. The lien's original purpose and transaction history matter.

Practical lesson: obtain the old second-mortgage closing statement or documentation early. Whether the lien originally financed the property's purchase can change the entire refinance category.

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.