A borrower purchased a home using seller financing with no institutional lender involved. Two years later, they want to obtain a traditional mortgage to pay off the seller and get cash for improvements. The seller financing balance is $200,000, and they want a new loan for $250,000. How is this transaction classified?
Correct Answer
B) Cash-out refinance because they're replacing existing financing and taking cash
This is classified as a cash-out refinance under TRID regulations. The seller financing constitutes an existing mortgage or lien against the property, and since the new loan amount exceeds the existing debt by more than closing costs, it's treated as cash-out refinancing regardless of the original financing source.
Why This Is the Correct Answer
This is classified as a cash-out refinance under TRID regulations. The seller financing constitutes an existing mortgage or lien against the property, and since the new loan amount exceeds the existing debt by more than closing costs, it's treated as cash-out refinancing regardless of the original financing source.
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