October 17, 2017
How can I get cash back with an FHA loan? It’s a question many want to know, especially those who might be interested in applying for “more” FHA loan than is needed to complete the transaction. Is getting cash back at closing time possible with an FHA mortgage?
The answer depends greatly on the type of transaction you seek. Some loans do not allow any cash back except for refunds, others are designed to offer money to the borrower at closing time depending on the terms of the loan and other factors.
FHA New Purchase Home Loans
If you are asking the cash back question about FHA forward mortgages (loans used to buy a home on the housing market as opposed to a refinance loan or an FHA reverse mortgage), the answer is basically no. You can’t get cash back at closing time on an FHA mortgage loan except in the form of a refund.
Refunds are possible for items that were paid in cash up front but later financed into the loan amount. But bona fide cash back isn’t allowed with an FHA mortgage loan used to purchase property. Cash back is possible with certain types of refinancing loans, which we’ll cover below.
FHA Cash Out Refinancing Loans
Cash back to the borrower is possible with an FHA cash-out refinance loan. When you refinance a property using an FHA cash-out loan, your new loan will pay off the old mortgage in full, and pay for any fees and expenses required as part of the new loan. Any remaining cash left over once those obligations are settled goes to the borrower.
FHA cash-out refinance loans require new credit check and appraisal. The appraisal is very important since the LTV limit for cash-out refinance loans is 85% of the adjusted value of the property.
FHA Reverse Mortgages
FHA reverse mortgage loans, also known as FHA Home Equity Conversion Mortgages (HECM) also feature cash back to the borrower. These loans are limited to qualified borrowers aged 62 or older who either own their homes with no mortgage payments or to those who have very few mortgage payments left to make.
FHA HECM loans do not feature any monthly mortgage payments-the loan becomes due in full when the owner dies or stops using the home as the primary residence. FHA reverse mortgages feature interest rate and payout arrangements that vary depending on the type of loan you get-fixed rate or adjustable rate mortgages.
Payment options for the cash back to the borrower on this type of FHA loan will also depend on whether you have an adjustable rate mortgage or a fixed rate loan-talk to a loan officer about the options to see which may work best for you.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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