October 20, 2018

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Streamline Refinance Loan Rules: Is Cash Back Permitted?

FHA Streamline Refinance Loans: Is Cash Back Permitted?

Do FHA Streamline Refinance Loans permit cash back to the borrower? Can you apply for “more” refinance loan than you need to pay off the original mortgage and take that cash at closing time?

The FHA Streamline Refinance loan is for existing FHA mortgages; borrowers who have an FHA loan who want to refinance in order to get a financial benefit such as a lower payment, shorter loan term, or get out of an adjustable rate mortgage should consider this as an option.

But is one of the financial benefits offered the ability to get cash back? FHA refinance loan options do include cash-out refinancing, intended for FHA and non-FHA loans alike.

Let’s examine what the FHA loan handbook, HUD 4000.1, has to say about cash back to the borrower as part of an FHA Streamline Refi. To start, there are rules for lenders who need to estimate the maximum mortgage amount for loan calculation purposes. HUD 4000.1 tells the lender:

“The Mortgagee may utilize estimates in calculating the maximum mortgage amount to the extent that the total mortgage amount does not result in the Borrower receiving greater than $500 cash back at mortgage Disbursement.”

This is the section in the FHA Streamline Refi rules directly above a heading titled “Excess Cash Back”. Before addressing that issue, HUD 4000.1 reminds the loan officer:

“Cash to the Borrower resulting from the refund of Borrowers unused escrow balance from the previous Mortgage must not be considered in the $500 cash back limit whether received at or subsequent to mortgage Disbursement.”

So far, the only cash back to the borrower above $500 permitted in the FHA loan rules involves refunds. What does the rulebook say about “excess” cash back?

“When the estimates utilized in calculating the maximum mortgage amount resulted in greater than $500 cash back to the Borrower at mortgage Disbursement, Mortgagees may reduce the Borrower’s outstanding principal balance to satisfy the $500 cash back requirement.”

As you can see, Streamline refi loans don’t function the same way that cash-out refinance loans do. The lender is required to lower the actual loan amount dollar-for-dollar against any excess money back to the borrower above $500. Borrowers who need more cash back are encouraged to look at FHA cash-out refinance loans, which are available for FHA and non-FHA mortgages.

Additional lender requirements may apply for both cash-out and Streamline FHA loans.

 

 

Bruce Reichstein - Staff Writer

By Bruce Reichstein

April 17, 2018

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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