January 24, 2022

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How To Get Cash Back On An FHA Home Loan

Home loan approval and debt

Do you need to know how to get cash back on an FHA home loan? If you want to purchase a home with an FHA “forward mortgage” you might be tempted to ask your lender if it’s possible to apply for more mortgage loan money than is required to complete the transaction.

This question usually comes with the hope of being allowed to take the extra loan funds out in cash similar to a personal loan.

Some borrowers want to know if they can do this, but that specific scenario is definitely NOT possible under FHA home loan rules.

Borrowers are not permitted to get cash back in such cases (we’re discussing FHA purchase loans here and NOT FHA cash-out refinance loan options) except in the form of a refund for money paid upfront for items that were later included in the mortgage loan.

In some cases a refund might come from an unexpected source, but those payments are still considered a refund and not “excess cash back”. A good example of this? When a borrower refinances an existing FHA loan and meets the following criteria:

“If the Borrower is refinancing their current FHA-insured Mortgage to another FHA-insured Mortgage within 3 years, a refund credit is applied to reduce the amount of the Upfront Mortgage Insurance Premium (UFMIP) paid on the refinanced Mortgage, according to the refund schedule…”

In spite of this being a refund, note that the amount of the UFMIP credit does not go directly to the borrower, but is applied to reduce the UFMIP on the new loan.

Getting Cash Back On Certain FHA Loans

The FHA loan transactions where cash DOES go back to the borrower include FHA cash-out refinancing, and FHA Reverse Mortgages (also known as Home Equity Conversion Mortgages or FHA HECM loans).

These two loans are specifically designed to give cash back to the borrower once the closing costs are satisfied.

But the presence of those two FHA loan types should not be confused with “forward mortgages” for purchase of a new property; when you use an FHA mortgage to buy (not refinance) a new home you won’t be permitted “excess cash back” except in the form of a refund.

If you need an FHA loan that does feature cash to the borrower for repairs, rehab, or renovation, ask a participating loan officer about the FHA 203(k) rehab loan program which features escrow payments to contractors performing the work on behalf of the borrower.

Can the borrower act as her own contractor? That depends on circumstances and other factors-discuss your needs with your loan officer to see what is possible with an FHA rehab loan. You’ll want to know those important details before you commit to the new mortgage.

Joe Wallace - Staff Writer

By Joe Wallace

November 22, 2021

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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About FHANewsBlog.com
FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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