The Quick Read: You keep the home by replacing the joint mortgage with a new loan in your name alone. Part of that loan pays off the old mortgage, and part pays your former partner their agreed share. Both Fannie Mae and Freddie Mac have a buyout path, but they name it differently and measure the ownership clock from different dates. You must qualify on your own income, credit, and debts, and you generally cannot take extra cash for yourself.
Key Takeaways
- A signed written agreement or court order that sets the buyout terms is the foundation of the file.
- Both agencies want 12 months of joint ownership before the buyout path opens.
- You qualify alone. Your former partner’s income leaves the file.
- Cash beyond the buyout and closing costs can push the loan into full cash-out territory.
- Removing a name from the deed does not remove that person from the old loan. Only a payoff, a release, or a sale does.
What Does a Buyout Refinance Actually Do?
It swaps the old shared loan for a new one that you carry alone. The old mortgage is paid off at closing. Your former partner is paid the agreed amount from the new loan’s proceeds. The deed is recorded so title reflects the new owner.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
Say two people bought a home together and now one wants out. The staying owner can’t just send a check unless they have the cash. A refinance turns the equity in the home into that check.
The loan family most people think of here is a cash-out refinance. Lendmire’s cash-out refinance programs page covers the standard version. A co-owner buyout often gets special handling inside that family, which is where most of the confusion lives.
Lendmire is a mortgage broker. It arranges conventional loans through wholesale lenders and does not lend directly. Every figure below is subject to lender guidelines and full file review, and none of it is a commitment to lend.
How Do Fannie Mae and Freddie Mac Treat a Buyout?
The treatment differs by agency, and the difference affects leverage and cost. Fannie Mae can classify a qualifying buyout as a limited cash-out refinance, which allows higher leverage than a full cash-out. Freddie Mac uses a dedicated special purpose cash-out category and ties it to its cash-out limits.
| Factor | Fannie Mae | Freddie Mac |
|---|---|---|
| Label | Limited cash-out | Special purpose cash-out |
| Joint ownership test | 12 months before disbursement | 12 months before application |
| Occupancy test | Not stated for the buyout | Both parties lived there |
| Leverage basis | Higher than full cash-out | Cash-out limits apply |
| Cash to keeping owner | Incidental only | Incidental only |
Fannie’s limited cash-out guide says a transaction that requires one owner to buy out another, such as a divorce settlement or the end of a domestic partnership, is a limited cash-out refinance. The party doing the buying must qualify under Fannie’s guidelines. At least one borrower on the new loan must be on title at application.
Freddie’s special purpose cash-out section defines the loan as a cash-out refinance used to buy out a co-owner’s equity. It requires a written agreement signed by all parties that states the transfer terms and how the proceeds will be paid. Both owners must show they lived in the home as a primary residence, with an exemption for inherited interests. The owner who keeps the home receives only incidental cash back, not a share of the proceeds.
Which agency’s rules apply depends on who owns the loan: Fannie Mae or Freddie Mac. Ask your broker which one applies before you plan around a leverage number. For exact limits by property type, the Fannie Mae Eligibility Matrix separates limited cash-out from cash-out for principal residences.
How Is the Loan Underwritten, Step by Step?
Underwriting follows a set order, and each step can stall the file if skipped. Here is the sequence a lender works through.
1. The agreement. The lender wants the signed buyout terms in writing. That means a settlement agreement, a court order, or a signed contract naming the amount and how it is paid.
2. The ownership clock. The lender confirms how long both of you have owned the home. Twelve months of joint ownership is the standard test at both agencies. Fannie counts back from the new loan’s disbursement. Freddie counts back from the application.
3. Title and loan structure. The new loan is in your name alone, and the old joint mortgage is paid off from it.
4. Your own qualifying profile. The wholesale conventional programs start at a 620 decision score. For most files the automated underwriting finding governs, with a total debt ratio ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45%, depending on score and reserves.
5. Support income, if you rely on it. If you count alimony, child support, or equalization payments, the lender needs the payment terms in writing. Fannie’s support income guide accepts a decree, a separation agreement, or another written legal agreement. The income must be expected to continue for at least three years from the application date. Payments someone merely promises to send don’t count.
6. Appraisal and leverage. The appraised value sets the loan-to-value ratio, which is the new loan divided by the home’s value. A low appraisal shrinks the loan available, which shrinks what you can pay your partner.
7. Closing and funds flow. The title or settlement agent pays off the old mortgage, pays your former partner, and records the deed. You receive a Loan Estimate early in the process and a Closing Disclosure before closing. Compare them line by line.
One trap deserves its own mention. The buyout figure in your agreement is a negotiated number. The appraisal is an opinion of value. When the two disagree, the loan is the thing that bends.
What Does the Math Look Like in Percentages?
Run the numbers on a home that appraises at 100% of value. Suppose the remaining mortgage is 55% of that value. Equity is the other 45%. If the two of you split it evenly, your partner’s share is 22.5% of value.
The new loan must cover the 55% payoff and the 22.5% buyout. Closing costs get added on top. That puts the loan near 77.5% of value plus costs, which is under the 80% cash-out limit for a one-unit principal residence. Mortgage insurance generally attaches above 80% leverage, with the wholesale no-mortgage-insurance cash-out lane as the exception, so this example would likely not need it.
Now change one input. The home appraises lower than you expected, or the mortgage balance is larger. Push the same buyout past 80% and one of three things follows. You renegotiate the payout, you bring cash to the table, or you look at the limited cash-out lane’s higher leverage if your file qualifies for it. That lane, for a one-unit principal residence, reaches 95% leverage, and 97% where the existing loan is agency-owned and the first-time-buyer program allows it. Every figure here varies by lender and program, and guidelines, property type, leverage, and credit profile all apply.
On a limited cash-out loan the incidental cash allowance is small. Fannie Mae’s is the lesser of 2% of the new loan amount or $2,000, and Freddie Mac’s is the greater of 1% of the new loan amount or $2,000. Don’t plan around it.
What Other Ways Can a Partner Be Paid Out?
A refinance is one route among several, and the right one depends on cash, credit, and the old loan’s terms. Compare them side by side.
| Route | Removes partner from loan? | Provides cash to partner? |
|---|---|---|
| Buyout refinance | Yes, old loan is paid off | Yes, from proceeds |
| Pay with savings only | No, old loan stays | Yes |
| Loan assumption | Only with a formal release | No |
| Sell the home | Yes, at payoff | Yes, from sale |
Paying with savings is clean for the partner’s payout but leaves both names on the old mortgage unless you refinance anyway. Assumption sounds ideal, and the CFPB’s review of post-divorce mortgage complaints shows servicers sometimes refuse to process it or push a refinance instead. A decree that says one person will be removed from the loan does not, by itself, release anyone from the note.
Selling is the fallback if you can’t qualify alone. It costs you the home, but it ends everyone’s liability.
Where Does the General Rule Break?
The buyout path has edges, and a few of them catch people who assumed the paperwork would carry the day. Know these before you sign anything.
Under 12 months of joint ownership. Both agencies set that test for the buyout path. Miss it and the loan may fall back to full cash-out rules, which means lower leverage and cash-out pricing. There are also standard seasoning rules for cash-out: the first mortgage being paid off must be at least 12 months old, measured note date to note date, and a borrower must be on title for 6 months. Delayed financing, inheritance, and legal-award exceptions exist, so a recent inheritance can change the answer.
Extra cash for the keeping owner. Say you want to fold in a credit card payoff. That takes the loan out of the buyout category and into full cash-out. Costs and leverage change with it.
Occupancy. Freddie’s special purpose rule asks both parties to have lived in the home. This article is written for principal residences. A cash-out can be written on a second home or investment property too, but occupancy sets the leverage, and those cases follow a lower limit of 75%, the same figure that applies to two- to four-unit principal residences.
Property type. One-unit homes reach 80% on a cash-out. Two- to four-unit principal residences cap at 75%. Manufactured housing has its own limits, so check the Eligibility Matrix.
Title versus loan. A quitclaim deed changes who owns the home, not who owes the debt. A refinance replaces the loan, but the deed still has to be recorded separately. Until the old loan is paid off or formally released, your former partner stays liable for it.
Second liens. A junior lien on the home affects combined leverage. Whether it must be paid off depends on the investor’s secondary financing rules.
Non-agency loans. Jumbo and other non-agency loans follow each investor’s own rules. The limited cash-out reclassification is an agency feature, so don’t assume a jumbo lender will treat a buyout the same way.
Unmarried or business partners. Fannie’s text names divorce and domestic partnership dissolution as examples, and “pursuant to an agreement” reads broadly. A home titled to an LLC doesn’t fit this structure, and a business-partner angle needs a lender’s direct answer.
Key Terms Defined
Limited cash-out refinance: a refinance that pays off your existing mortgage and closing costs, with only a small amount of cash back. It allows higher leverage than a full cash-out.
Special purpose cash-out refinance: Freddie Mac’s name for a refinance that pays a co-owner for their share of the home’s equity.
Loan-to-value (LTV): the new loan amount divided by the home’s appraised value, shown as a percentage.
Seasoning: the waiting period a lender requires, such as how long you’ve owned the home or held the existing mortgage.
Equalization payment: a payment from one former partner to the other to even out the division of property, usually set in a settlement.
Mortgage insurance: a cost added to conventional loans above 80% LTV that protects the lender. You can request cancellation at 80% of the original value with good payment history and no subordinate liens. The servicer must end it automatically at 78%. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
What Does the Decision Look Like in Practice?
Start with the question that decides everything: can you qualify alone? Add up your income, your debts, and the payment on a loan large enough to cover the old balance, the buyout, and costs. If your debt ratio is already near the 50% ceiling, the refinance may not work no matter how clean the agreement is.
Then check the clock, the paperwork, and the appraisal in that order. Your agreement should name the amount, the payment method, and who handles which costs. Ask for an appraisal estimate early, since a surprise there can reopen negotiations with your former partner.
Last, compare structures. A buyout under 80% leverage keeps costs simpler. A buyout that needs more leverage brings mortgage insurance into play, subject to the exception for the wholesale no-mortgage-insurance cash-out lane, which has its own requirements: a 680 score, a 50% ratio, a thirty-year fixed, a primary residence, a conforming balance, and its own six months of seasoning. That lane isn’t written in every state, and it isn’t written for a Texas homestead cash-out, which is capped at 80% of the home’s value by the state constitution. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
Frequently Asked Questions
Can I take extra cash out when I buy out my partner?
Generally no. Freddie Mac says the owner who keeps the home may not receive any of the proceeds. Fannie Mae allows only a small incidental amount on a limited cash-out loan. Cash beyond the buyout and closing costs pushes the loan toward full cash-out treatment, with lower leverage and different pricing.
Does it matter that we were never married?
It can, and the answer depends on the lender. Fannie’s examples are a divorce and the end of a domestic partnership, but its wording covers a buyout “pursuant to an agreement.” Freddie asks for a signed written agreement and proof both parties lived there. Unmarried co-owners should bring a clean agreement and ask a broker how the investor classifies it.
Does a deed change take my ex off the mortgage?
No. A deed changes title, not the loan. Your former partner stays liable on the old note until it is paid off, formally assumed with a release, or satisfied by a sale. A refinance pays off the old loan, and the deed gets recorded separately.
What if we haven’t owned the home for 12 months?
The buyout path generally needs 12 months of joint ownership. Without it, the loan may fall back to full cash-out rules, with lower leverage. The first mortgage being paid off must also be at least 12 months old, and a borrower must be on title for 6 months, with exceptions for delayed financing, inheritance, and legal awards.
What happens if I can’t qualify on my own?
The refinance can’t proceed as a solo loan. Options include paying down debts to improve your ratio, documenting support income that meets the agencies’ written-agreement rules, or selling the home. Adding a co-borrower changes the structure and may not preserve the buyout path, so ask before restructuring.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
2. Freddie Mac Seller/Servicer Guide 4301.6, Special Purpose Cash-Out Refinance Mortgages
3. Fannie Mae Eligibility Matrix
5. CFPB, Homeowners face problems with mortgage companies after divorce or death of a loved one
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How a Conventional Cash-Out Refinance Works Around Your Cash Timing · Cash-Out Refinance Lenders When Doing Your First Conventional Cash-Out Refinance · Can You Do a Conventional Cash-Out Refinance Before Seasoning Ends?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.