December 14, 2017
Can I get cash back on an FHA mortgage? That’s what some borrowers want to know, and the answer varies depending on the type of home loan you seek.
FHA Cash-Out Refinancing Loans
The FHA cash-out refinance loan is an FHA refi transaction designed to permit the borrower to take cash back at closing time. The amount of cash you get back on this type of loan depends on how long you have been paying on your home loan, and the amount of any add-ons to your mortgage such as financed closing costs, etc.
You aren’t allowed to borrower more than the property is worth based on FHA appraisal guidelines and LTV limits. That means you can’t use a home worth $250,000 to secure am FHA cash-out refinance loan for $700,000.
An appraisal is required to determine the fair market value of your property and the amount of the new loan will be derived based on that valuation.
FHA Reverse Mortgages
FHA reverse mortgages, also known as FHA Home Equity Converstion Mortgages (HECM), are unique among FHA loan products. They are restricted to borrowers aged 62 or older who either own their homes or don’t have many house payments left.
FHA HECM loans do not feature any monthly mortgage payments, but instead give money back to the borrower based on the appraised value of the property, the type of loan agreement signed (fixed rate or adjustable rate), and other factors.
Borrowers may, depending on the transaction, be able to choose between a lump sum payout and a series of payments. You’ll negotiate those details with your lender.
FHA reverse mortgages require mandatory counseling for all those to be obligated on the mortgage, and the amount of cash back to the borrower will vary depending on circumstances. There are occupancy requirements and escrow may be required for this transaction.
Do FHA Forward Mortgages Allow Cash Back?
FHA forward mortgages, also known as new purchase loans, do not permit cash back to the borrower except for refunds for things paid up front but later financed into the loan amount. FHA loan rules prevent the lender from issuing “excessive mortgages” above the adjusted value of the home plus any financed closing costs and add-ons to the mortgage.
In cases where there is what the FHA deems to be “excessive cash back” on a transaction (that does not otherwise permit cash back) the lender is authorized to reduce the principal of the loan by the amount of the excess cash to the borrower.
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.
Browse by Date: