FHA Home Loans: Getting Cash Back

November 30, 2021

When it’s time to consider your home loan options, do you wonder about how to get cash back on an FHA mortgage? The FHA cash-out refinance loan option is a way you can refinance an existing mortgage (FHA or non-FHA) and take equity in the home out in cash at the same time. 

But some aren’t thinking about refinance loans. They instead want to buy a new home and ask to apply for more mortgage loan money than is required to purchase. These borrowers want to use the remainder of the loan funds like a personal loan.

Is This Possible?

Not with an FHA mortgage. You’ll generally find that home loans are not meant to provide cash back to the borrower in the same fashion as a cash-out refinance loan or home equity line of credit.

For government-backed mortgages, most cash at closing time that goes back to the borrower is extremely limited and usually takes the form of a refund for items paid for upfront but that were later financed into the loan amount.

Energy Efficient Mortgages

There are FHA loan transactions where cash DOES potentially go back to the borrower but not in an unrestricted way. This includes Energy Efficient Mortgages where loan funds must be used to pay for installation, energy assessments, etc.

Other FHA loan transactions that permit cash back include the previously mentioned FHA cash-out refinancing, plus FHA Reverse Mortgages which are offered to qualifying borrowers aged 62 or older who either own their homes outright or are very close to doing so.

FHA Rehab Loans

Another type of FHA loan that does feature cash to the borrower for repairs, rehab, or renovation? The FHA 203(k) rehab loan program allows the use of cash (paid via escrow) in order to issue draws and payments to contractors performing the work on behalf of the borrower for FHA and lender-approved renovation projects.

FHA renovation loans do not permit unrestricted cash out--the money can only be used for the approved projects.

Can the borrower act as her own contractor for such work? That depends on circumstances and other factors-discuss your needs with your loan officer to see what is possible with an FHA rehab loan. Lender requirements and state law may play a big part in whether you’re allowed to do your own rehab work with an FHA 203(k) mortgage.

What’s Next?

If you need unrestricted cash out, consider the FHA cash-out refinance loan if you have an existing mortgage. If you need to purchase a home, don’t expect cash back on the deal, but do remember that you have options that can lower your upfront costs of the mortgage including the ability to negotiate with the seller to have them pay up to six percent of the closing costs on your FHA loan. That may not be as good as cash out, but it gets some borrowers a more affordable loan.

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