Four months after an arm's-length cash purchase for $305,000, an owner seeks a Fannie Mae cash-out refinance on a home now appraised at $340,000. The documented purchase used the owner's own funds and the property has no liens. Which loan-amount rule applies if the delayed-financing requirements are met?
Correct Answer
C) Initial documented investment plus eligible new-loan closing costs, prepaid fees and points, subject to current-value cash-out LTV limits
C. Both the documented-investment cap and applicable cash-out ratio limits apply. The stem assumes the delayed-financing requirements are met, so use that exception rather than ordinary seasoning alone. Eligible new-loan costs can be added to the actual documented initial investment, but applicable LTV, CLTV and HCLTV limits based on current appraised value still constrain the amount. Scope and exceptions: No exact maximum dollar amount is calculable without eligible costs and applicable ratio limits. Do not invent an LTV limit or assume all delayed-financing conditions from four months of ownership alone. Source: B2-1.3-03, Delayed Financing Exception — https://selling-guide.fanniemae.com/sel/b2-1.3-03/cash-out-refinance-transactions
Why This Is the Correct Answer
C. Both the documented-investment cap and applicable cash-out ratio limits apply. The stem assumes the delayed-financing requirements are met, so use that exception rather than ordinary seasoning alone. Eligible new-loan costs can be added to the actual documented initial investment, but applicable LTV, CLTV and HCLTV limits based on current appraised value still constrain the amount. Scope and exceptions: No exact maximum dollar amount is calculable without eligible costs and applicable ratio limits. Do not invent an LTV limit or assume all delayed-financing conditions from four months of ownership alone.
Why the Other Options Are Wrong
Option A: The full $340,000 appraised value, because the original purchase used no mortgage
The higher appraisal is not an unlimited reimbursement entitlement.
Option B: Exactly $305,000 regardless of closing costs or applicable cash-out LTV limits
Exactly $305,000 ignores eligible costs and applicable ratio limits.
Option D: No loan is permitted until the owner has held title for twelve months
It disregards the delayed-financing exception stipulated in the question.
Exam Tip
An exception to seasoning does not waive loan-amount constraints.
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