March 5, 2014
A reader asks, “When you getting a FHA loan can you have some money in the bank for the hard days to come in case something happens in the future unexpectedly?”
It seems as though the reader is asking if the borrower can apply for an FHA home loan in excess of the amount required for purchase and put that money in the bank for later use. FHA loan rules are clear for new purchase home loans–there is no cash back to the borrower permitted.
FHA home loans for new purchases require a minimum cash investment of 3.5%, so the down payment issue would further complicate the issue if a “no cash out” policy weren’t in place. Borrowers are not only required to make a down payment for FHA home loans (one that is much lower than many conventional mortgage loan down payments) but they are also required to have the sources of that down payment money certified as coming from an “approved source”.
The reason the “cash out” question comes up from time to time likely has much to do with the existence of the FHA cash-out refinancing loan option. Borrowers who hear that a cash-out option is available may assume the same potential exists for new purchase loans as with refinancing.
But FHA loan rules only permit cash back to the borrower for cash out refinancing loans. FHA new purchase mortgages and streamline refinancing loans do not allow money back to the borrower except as refunds (as mentioned above).
The down payment and other expenses related to purchasing any home can be daunting at first, but borrowers who plan ahead and take a year or more to save and prepare for the FHA loan have a better time managing these expenses.
Budgeting for them and saving up for them can also include setting aside a small amount for contingencies after the loan is completed and the house is purchased. Granted, not all borrowers have the ability to budget in this way, but taking extra time to save and prepare for the expenses of owning a home can be a big help.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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