If I Refinance to Buy Out My Ex-Spouse's Share of the Home, What Rate or Pricing Applies?
Usually rate-and-term pricing, not cash-out pricing, which tends to mean a better rate and a higher loan-to-value limit. Fannie Mae and Freddie Mac both treat a buyout written into a divorce decree or settlement that way. The treatment covers the buyout amount in the agreement, plus paying off the old mortgage and closing costs. Borrow more than that, and the loan is generally priced as a standard cash-out refinance.
Last updated September 29, 2026Why is a divorce buyout treated differently from a cash-out refinance?
Normally, taking equity out through a refinance counts as cash-out, which comes with a lower maximum loan-to-value and higher pricing. But when the money goes to buy out a co-owner's share under a written agreement, both agencies let the loan be treated under the more favorable rules instead. Fannie Mae calls it a limited cash-out refinance.
Freddie Mac's version is called a "special purpose cash-out refinance." Despite the name, Freddie Mac exempts it from the price adjustment that applies to standard cash-out loans.
What conditions apply?
Under Fannie Mae's guidelines:
- A written agreement: everyone on title signs an agreement setting out the property transfer and where the refinance money goes.
- Twelve months of joint ownership: the home has to have been owned jointly for at least 12 months before the new loan funds, with an exception for a recent inheritance.
- No proceeds for the spouse keeping the home: the person taking sole ownership can't receive any of the refinance money.
- Qualifying on your own: the spouse keeping the home has to qualify for the new loan alone.
What happens if I borrow more than the buyout?
If the new loan goes past the amount in the agreement, say for renovations or paying off other debt, the whole refinance is generally reclassified as standard cash-out. That can mean cash-out pricing and a lower loan-to-value limit on the entire loan, not just the extra.
It depends on your situation:
- The loan matches the agreement, plus the mortgage payoff and closing costs: it generally qualifies for rate-and-term treatment.
- You want extra cash beyond the buyout: expect cash-out pricing and limits on the whole loan.
- You've owned the home jointly for less than 12 months: the favorable treatment may not apply, so raise it early.
- The settlement isn't final yet: lenders in our network commonly need the signed decree or settlement agreement before they can confirm the treatment.
- You're only taking your ex off the loan, with no buyout: that's a different transaction, so talk it through with your loan officer.
| Pricing | Rate-and-term (limited cash-out), not standard cash-out, when the payout follows a written agreement |
|---|---|
| Amount covered | The buyout in the agreement, plus the old mortgage payoff and closing costs |
| Borrowing more | Can push the whole loan into cash-out pricing and limits |
| Joint ownership | At least 12 months before the new loan funds (Fannie Mae) |
| Money to the spouse keeping the home | None |
| Freddie Mac's name for it | Special purpose cash-out refinance, exempt from the standard cash-out price adjustment |
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Sources
- https://selling-guide.fanniemae.com/sel/b2-1.3-02/limited-cash-out-refinance-transactions
- https://selling-guide.fanniemae.com/sel/b2-1.3-03/cash-out-refinance-transactions
- https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/cash-out-refinance
- https://guide.freddiemac.com/app/guide/section/4301.5
Sourced from licensed loan officers and brokers in the FreeRateUpdate network.
Educational information only, not individualized financial or legal advice. Program details and rates change; verify current terms with a licensed loan officer before making a decision.