If you want to know if FHA loans permit cash back to the borrower, then you’re in the right place. Here’s what you need to know about getting cash back on this popular government-backed home loan.
How Cash Back Works With Refinancing
A cash-out refinance is designed to give the borrower more than $500 cashback at closing. The FHA’s cash-out program allows you to cash out a portion of your equity and loan up to 85% of your home’s value.
You can receive less or up to $500 cashback when closing either a “no cash-out” refinance or a streamlined refinance. These refinance programs change your monthly payments with the streamlined program resulting in lower monthly payments or better loan terms.
Note that in cases where an FHA refinance loan features cash back to the borrower, a new credit check and an appraisal are required. In this case, the appraisal determines the home’s current market value at the time of the new transaction, while the credit check is needed to ensure that the borrower can afford to pay the new loan.
Cash Back Provisions on FHA Purchases
In the case of purchases, an FHA lender and escrow holder will require you to bring a certain amount of money during closing. Your lender will review the final settlement costs before releasing the loan funds.
The escrow holder needs to ensure that the account has enough money to settle all closing costs and ask for an amount over what the lender requires. This amount is also known as a “cushion” or “refundable pad,” which ranges between $100 and several hundred dollars.
You will receive close to this amount as cashback after closing.
RESPA Regulations Regarding Cash Back
The Real Estate Settlement and Procedures Act forbids FHA borrowers from receiving cashback during closing outside of escrow or on the side. Lenders, sellers, and agents may not give you cash after closing.
TRID rules also prohibit a lender from changing its fees, without a valid changed circumstance, and require that the final Closing Disclosure fees be close to most initially estimated fees.
Factors that Affect Cash Back
Even if the FHA doesn’t say how much you can receive back at closing, it won’t allow you to receive more than you put into the transaction. Usually, FHA buyers must provide a down payment and cover closing costs which comes to around 6% of the total price.
You can expect a cashback computed from the difference between the total amount you were asked to contribute and the actual charges paid out during closing.
The length of time between the estimated closing date and the actual closing date impacts the amount you receive back. If you close later than expected, you will owe more in prepaid mortgage interest and property taxes, which will lower your refund or cashback.
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If you want to know more about cash-backs on your FHA loan, our cashback experts will use their experience and expertise to offer advice and guidance throughout the home buying process.
Reach out today by giving us a call or sending us a message on our website for a free consultation.