Buying investment properties with minimal downpayment

16 Replies

I'm just starting out by purchasing a 4-bedroom house on an FHA loan with great interest rate in 01/2018.

I do want to buy other properties with minimal downpayment possible. I know I'm only allowed one FHA loan, and I can convert my current FHA loan to conventional thenrent out, and then take out another FHA loan as owner-occupied.

My biggest issue is the interest rate! I currently have a great rate on FHA, and refinancing into conventional could raise my monthly payment by a couple of hundred bucks.

Question is can I purchase an investment property right now with 20% down, then move out of my FHA after 1-yr to the "investment property" and then refi it as owner-occupied and cash out my 20% downpayment put into it to LTV of 95% and use the funds to buy another property?

My goal is to keep my great rate FHA, and still able to buy other properties until rates drop!

You could do that, but are you gaining anything by doing it? The multi, I'm assuming, is a less expensive place to live than moving into the investment property. So, unless you need the space, I don't know that it will be much of a financial benefit.
(267) 520-0454
Never mind, I misread and thought you had an FHA on a multi family. Yes, that is something you can do, just make sure the 4 bed cash flows with the FHA.
(267) 520-0454

..so I can convert an investment property to an owner-occupied and pull out my 20% downpayment in cashout? Also, is it legal to convert an FHA loan to a full rental after 1-yr without any issues?

Originally posted by @Mikky Alfaz :

I'm just starting out by purchasing a 4-bedroom house on an FHA loan with great interest rate in 01/2018.

I do want to buy other properties with minimal downpayment possible. I know I'm only allowed one FHA loan, and I can convert my current FHA loan to conventional thenrent out, and then take out another FHA loan as owner-occupied.

My biggest issue is the interest rate! I currently have a great rate on FHA, and refinancing into conventional could raise my monthly payment by a couple of hundred bucks.

Question is can I purchase an investment property right now with 20% down, then move out of my FHA after 1-yr to the "investment property" and then refi it as owner-occupied and cash out my 20% downpayment put into it to LTV of 95% and use the funds to buy another property?

My goal is to keep my great rate FHA, and still able to buy other properties until rates drop!

There's more to it than the interest rate, for an FHA loan you pay private mortgage insurance that alone equates to 0.5% - 1% of the loan. But I wouldn't be worried about that because the best part of the FHA loan isn't the interest rate, it's the fact that you can buy a property with 3.5% and not 20%. If your goal is to scale then your plan is to get your FHA out asap for a rate and term refi so you can use this 3.5% down again.

I don't know your income and any other details but if you can hold the monthly expenses down I'd rather have more cash on hand and less in a deal then put in 20% down and have less reserves for unforeseen events. Meaning if I were you I'd get your rooms rented, let this property get some market appreciation and do anything I can to force the appreciation up to do this R&T refi and repeat this FHA.

(I also read '4 unit' and not 4 bedroom lol)

You mean to keep my FHA for 1-yr, then refi to conventional and take out another FHA for 3.5%? This was my original plan, but I can only do this every year...any way of buying multiple houses per year with low down payment?

Interest rates will NOT drop anytime in the foreseen future. In fact, FEDs stated they will have at least two more hikes in 2018 and 3-4 more hikes in 2019. A quarter pt a pop you can estimate the outcome.  

Sam Shueh 

Originally posted by @Mikky Alfaz :

You mean to keep my FHA for 1-yr, then refi to conventional and take out another FHA for 3.5%? This was my original plan, but I can only do this every year...any way of buying multiple houses per year with low down payment?

 Unless you have the ability to create 16.5% equity within a year from forced appreciation and other creative ways to successfully refi this without putting money in, I'd take it one step at a time. If you could do all of that as a starting investor or if you just have too much cash that you can't sleep at night then I'd say seller financing would be the solution to your problem. But then again if you have all that cash we probably wouldn't be having this discussion lol so I'm probably sticking with the first sentence "take it one step at a time."

You won't be able to cash out 100% of the property value, but I've seen 95% LTV refinancing. You can convert an FHA mortgages property to a rental after 1 year.
(267) 520-0454

If I rent out my FHA after one year, am I eligible for another FHA as owner-occupied, or I need to refi to conventional to be eligible for another FHA at 3.5%?

I do have 20% cash right now to put down, what's the best way to make use of this? I will be borrowing this from 401k, so want to buy as many properties as possible with this downpayment.

@Mikky Alfaz wow lots of bad info in here...

To answer your question, NO.  You cannot cash out to 95%.  75% is the max Conventional cash out on a 2-4 unit as a primary.

Suck it up, refi to Conventional now, because you CAN do a rate/term refi at 95% on a single family, then buy the next one with FHA and 3.5% down in a year.

Rates will continue to rise.  Just be happy you are doing things in the 4-5% range now, rates are still historically pretty low.

Listen to a lender who knows what they are talking about.  In fact, since you are in CA, @Chris Mason is who you should be talking to about this.  He knows his stuff too.

Best of luck!

Zack Karp, Lender in (#NMLS 197896)
847-387-5513
Originally posted by @Jason DiClemente :
@Zack Karp he didn't say the investment property was a multi family. I was assuming it was another SFR. You can cash out 95% on an owner occupied SFR

You can rate/term refinance @ 95% LTV, but a conventional 30YF cash out refinance is capped at 70% to 80% depending on occupancy and unit count.

Fannie matrixFreddie matrix.

There are second mortgages that can get up that high, however. 

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

I closed my mortgage in mid-Jan 2018, so it's been just 3 months on the loan, and I hate to refi now so my loan officer can get his commission. So after 6 months, say in mid mid-Jul, if I refi from FHA to Conventional, do I automatically qualify for another FHA immediately? Or do I have to wait a year (until mid Jan 2019) to be eligible to take on another FHA at 3.5%? I'm single, so moving is no issue.

Originally posted by @Mikky Alfaz :

I closed my mortgage in mid-Jan 2018, so it's been just 3 months on the loan, and I hate to refi now so my loan officer can get his commission. So after 6 months, say in mid mid-Jul, if I refi from FHA to Conventional, do I automatically qualify for another FHA immediately? Or do I have to wait a year (until mid Jan 2019) to be eligible to take on another FHA at 3.5%? I'm single, so moving is no issue.

 Hi Mikky,

There's nothing automatic about qualifying for a mortgage, but you wouldn't be automatically disqualified, if that makes sense. There needs to be some unanticipated reason why you didn't fulfill your promise to owner occupy for a year.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

My $0.02 - 

Leave the FHA alone, even with the PMI its probably still a lower rate than a refi.

You can get 3-5% down conventional financing if you plan to occupy. In my area, hardly anyone uses FHA unless they have poor credit due to the competing owner occupy low down conventional route.

(507) 317-9888

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