An FHA borrower refinances into a lower rate with no appraisal and asks for $3,000 back at closing. What is the ordinary maximum cash back allowed on an FHA streamline refinance?
Correct Answer
A) A streamline may return no more than $500 to the borrower
A. The ordinary streamline cash-back ceiling is $500, not $3,000. HUD’s streamline overview expressly prohibits cash out above $500. A lower rate does not remove that restriction. A net tangible benefit and other eligibility requirements must still be established. Scope and exceptions: Streamline means reduced documentation and underwriting, not no costs or automatic approval. It has credit-qualifying and non-credit-qualifying options. This ceiling is not an entitlement to receive $500, nor a rule about every separate refund of a borrower’s own funds. Source: Basic requirements for streamline refinancing — https://www.hud.gov/hud-partners/single-family-streamline
Why This Is the Correct Answer
A. The ordinary streamline cash-back ceiling is $500, not $3,000. HUD’s streamline overview expressly prohibits cash out above $500. A lower rate does not remove that restriction. A net tangible benefit and other eligibility requirements must still be established. Scope and exceptions: Streamline means reduced documentation and underwriting, not no costs or automatic approval. It has credit-qualifying and non-credit-qualifying options. This ceiling is not an entitlement to receive $500, nor a rule about every separate refund of a borrower’s own funds.
Why the Other Options Are Wrong
Option B: A streamline may return up to $5,000 for verified repairs
A repair purpose does not create the proposed $5,000 exception.
Option C: A streamline may return up to 2% of the new loan amount
A percentage of the new loan is not this streamline ceiling.
Option D: A streamline may return any amount if the payment still drops
A payment reduction does not authorize unlimited cash extraction.
Exam Tip
Evaluate permitted cash back separately from rate improvement and net tangible benefit.
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