Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
Hey guys,
I'm househacking in New Jersey. I was refinancing my loan out of an FHA into a conventional when the loan officer and I were discussing the rates and all. Then, I asked him, what my chances of applying for an FHA after would be. He then proceeded to tell me he can't then apply me for a conventional loan, it must be for an investment property, and can they can potentially call my loan note due if i don't use it as a primary home. I am staying there currently, but then can I not move out at all without turning into an investment type loan? Rates are much higher and I may not be able to refinance then. I don't want to do anything illegal or anything to put me at risk of the loan note being called due. What should I do/ how are other people getting loans for their second property?
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
5y
@Shivam Patel it's very simple. Any loan for a primary residence...whether it be a purchase or refinance, whether it's Conventional, FHA, or VA...you will be signing a legal document at closing called a Mortgage, that states you are going to occupy for 1 year.
If you are looking to refi from FHA to a new primary residence Conventional loan, that starts the 1 year clock over again.
If you are intending to not live there for another year, and you did the refi as a primary residence, you are committing mortgage fraud.
Your lender is doing his job and letting you know the law.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
@Jill F.
Oh I know that, I've been living here for 7 months so far but my goal was to refinance out of an fha into a conventional so I no longer have to, but I didn't know you can't use a conventional for investment?
Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
5y
I'm not sure I understand the question. You can get regular residential financing (backed by freddie/fannie) for up to 4 units. You have to disclose that it won't be owner occupied but it's still conventional financing subject to fannie/freddie underwriting requirements (like a decent DTI)-- you'll pay a little more than you will for an owner occupied property but it still the cheapest financing for a non-owner occupied investment property (I thought these usually aren't callable loans if you haven't done something fraudulent). Most of my loans are commercial loans from a portfolio lender-- these loans are required for 5+ units and there are different underwriting requirements (DSCR 1.25+) they look more at the deal and your experience and assets. These are usually still full recourse loans (for small investors) and they are callable.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
@Jill F.
Yeah so I did disclose that I won't be owner occupied, and then the conversation turned to I can't refinance into a conventional loan, it would have to be a investment loan or he would call the loan due. I've followed all the guidelines, and have lived there this whole time but I thought I can refinance into a conventional loan because I'm still currently living there until I find my next property (4plex) which I intend to use fha. The one I'm househacking right now is sfh with 2.325%. I can't afford to refinance it into an investment type loan because not only will it be more in interest rate but also my down payment has to be a lot higher and my monthly payment will be higher in which case I can't cashflow.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
Thanks for the document, I'll into this, I don't understand some of the terms of home-ready, and limited and non-limited refinance just yet. However, did you mean that its a terminology issue based on how I'm explaining it to the loan officer? I'm not doing anything illegal right?
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
5y
@Shivam Patel Conventional loans are for both owner occupied or investment properties. Investment properties have a lower LTV and higher rates.If you are trying to refinance into an Owner occupied conventional loan, you have to live there for another year, just as if you were buying with one. You've already shown a propensity for Not living up to your 1 year obligation by trying to refi your fha and move out before the one year.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
@Wayne Brooks
I mean I originally planned to stay the whole year but with low rates right now I want to figure out a plan to buy my next property and not sure what the best move is, while also following all the rules. Do you think my option is to only refinance to an investment property? It has 75% LTV looks like. And I guess I would have to stick it out a few months until I have enough to buy again right? I know if I sold the sfh I would take a big loss I think. Sellers commission of 6% + new closing costs = 25k about. The house would appreciate to +20k in today's market but I don't think the capital gains include those losses if I sold now, and on top of that I think I'd pay taxes on it too. Overall I would've lost atleast 30k I think if I sold now.. not sure what to do. There's got to be a way.. I really shouldn't have bought this to begin with and went with a fourplex...
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
5y
@Shivam Patel it's very simple. Any loan for a primary residence...whether it be a purchase or refinance, whether it's Conventional, FHA, or VA...you will be signing a legal document at closing called a Mortgage, that states you are going to occupy for 1 year.
If you are looking to refi from FHA to a new primary residence Conventional loan, that starts the 1 year clock over again.
If you are intending to not live there for another year, and you did the refi as a primary residence, you are committing mortgage fraud.
Your lender is doing his job and letting you know the law.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
@Zack Karp
I didn't know that. So I should wait then a few more months to finish out the 1 year, then can I get a conventioal loan towards a fourplex? Because if I refinance then I'd be required to stay there another year right? I rather just finish out my year, keep it as is, and just apply for a primary conventional on my next property? But do I have to be forced to refinance my loan after a year into an investment type or anything? I want to make sure I do everything the right way..
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
5y
Forget the refi. Just keep the FHA loan (with forever MIP) and get a new primary loan when you buy again.
You plan to keep this as a rental, right? Get a loan (with a lender with more than 2 brain cells) when you buy again like the rest of the country and leave this one alone. Great rate.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
@Steve Vaughan
Ahh I see, I'd like to keep it as a rental. But later down the line if I wanna 1031 I have to refinance it into a investment type loan right? And if I do that I won't be required to reset the 1 year because it's investment type right?
Now that I know this of resetting 1 year mark whether you get fha or conventional.. I think I'll be very careful about locking myself into something like this. I used to think that you could refinance out and then not be required to stay. I had no idea that even refinancing into conv you'd have to stay there a year again.. I need to read more into this.
Because investment loan has the around same LTV, why do people go for conventional. I mean you have the option to 1031 out, and not be required to stay or anything. Isn't it just better to do an investment type loan everytime then? I wonder what strategy's(legal) people use. Hmm..
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
5y
@Shivam Patel yes you can purchase a new primary 4-unit after your 1 year is up. You would need 20% down though with Conventional.
Otherwise, you could refinance your existing property to an investment property Conventional loan, which if it's a 2-4 unit property, you would need 25% equity (75% LTV max). That would free up your FHA eligibility to put 3.5% down on the next property.
And if you are refinancing to an investment property, you can do that at any time, because paying off the existing loan satisfies the Mortgage, so you don't need to wait out the full year. Then you could buy with a new FHA loan right away.
You might need to pay down the existing loan to get to 75% LTV if you don't have enough equity. But that might be smarter than putting 20% down on a new property. I don't know your numbers, you would need to weigh the cost of paying it down vs. putting down an additional 16.5% on the next property.
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
5y
@Shivam Patel buying as an investment property and living in the property is actually called reverse occupancy fraud.
I think you are confused, Conventional loans can either be a primary residence or investment property (or second home where you actually occupy part time). So we are talking about Conventional investment property loans here, they are one in the same.
There are other types of investment property loans that are not Conventional, and they come with worse terms...higher rates, etc.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
@Zack Karp
Ohhhhhhhh so that's where the disconnect is. There's a difference between conventional loan and conventional investment loan. So when I was reading up on it and listening on the podcast theyre actually saying refinancing into a conventional investment loan, not a regular Conventional loan. That makes sense. So if I refinance into that, (I would have enough to 25%) then I can wait a little bit and fha into another property without doing anything wrong right?
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
@Zack Karp
Okay.. so then I can't do that either then. I didn't know that was a thing either... So I can't stay there if I refinance into a conventional investment type and would have to rent somewhere else and then apply for an fha?
Ahh I see, I'd like to keep it as a rental. But later down the line if I wanna 1031 I have to refinance it into a investment type loan right?
If you 1031, you will relinquish / sell so nothing to refi. The proceeds will pay off the loan.
I always do conventional. I want PMI to fall off one day. MIP is forever.
Can't FHA investments and it's only a couple more % down on a primary and it won't scare sellers like FHA can. As a seller I will always take a conventional loan offer above FHA or VA (if otherwise equal). And I'm a vet.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
@Steve Vaughan
I need to read up on all this, it's not often talked about on the podcast. Any good resources recommendations to learn about all this. Seems like there's a lot of ways to mess up, and I don't wanna do anything illegal and run into issues.
I need to read up on all this, it's not often talked about on the podcast. Any good resources recommendations to learn about all this. Seems like there's a lot of ways to mess up, and I don't wanna do anything illegal and run into issues.
Nah. Easy-peazy.
if you get a primary mortgage, you have to live in the house for a year Don't refi. Don't even ask your lender about a refi. Just be quiet and look for your next property as the anniversary draws near.
Get a new loan when you buy a different house. You can leave the loan on your old primary alone.
When you sell, the mortgage is paid off.
The only 'advantage' to FHA is a lower down payment, but you are more likely to scare sellers and will have lifetime PMI. It is a very expensive loan long-term.
No generic podcast about mindset or BRRR or OOS needed.
Rental Property Investor · Cincinnati, OH · Member since 2020 · 84 posts · 81 votes
5y
@Shivam Patel
If you have an FHA in property you want to rent out all of the units you need to refinance that to an investment loan with 75%LTV ratio.
You can't, as far as I've experienced, change the FHA to a conventional then move out since conventional are also for primary residence.
25% LTV is high and in my plan I hope be able to re-use FHA through refinancing every 2-4 years.
Gone are the days of 125% LTV and 80-10-10 loans. The banks are allot more strict now and there is no easy money to just take on leverage rapidly without cash or assets to finance it.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
5y
@Jeremy Komer
You mean 75% not 25% LTV right? And what an 80 10 10 and how can they loan 125%? How does that work, did they used to lend more than the house is worth?
Rental Property Investor · NJ · Member since 2016 · 36 posts · 25 votes
5y
@Shivam Patel wow. As a mortgage underwriter I'm happy to hear your loan officer is so knowledgeable. So what exactly are you trying to accomplish? You're in a primary home with an FHA mortgage right now? And you want to buy an investment property? You CAN use rental income from an investment property being purchased to reduce your debt to income ratio..if the property already has a tenant you can use the existing lease. So the bigger issue is usually whether you have a down payment. If you own your current home, do you have equity in the home? Maybe you can get a heloc?