Can i refi an owner occupied FHA loan to conventional loan?

8 Replies

I want to buy a 4 unit home and live in one unit while renting out the other 3. But later on down the road, i want to purchase another home using an FHA loan to take advantage of the low %3.5 down payment. Will it be possible to refinance the original FHA loan on the first home to a conventional loan to drop the PMI? Also from what i understand, i would only be able to have one FHA loan at a time, so for my plan to work i would need to be able to refi to a conventional, correct? Thanks for any feedback.

Matt

You can always refinance the FHA loan to conventional. I suggest you do it while still owning the home as a primary residence, as investment properties can be more expensive to refinance.

You will need to show 75% loan to value on your home (25% equity) before refinancing to a conventional loan (this is a current requirement for 3-4 units).

You can have more than one FHA loan at the time, but there will be certain restrictions. For example, you will still have to prove something like having 75% loan to value on your first FHA loan, and have a letter of explanation on why you want to move (such as upgrading or relocating closer to work etc). You might also need to show 6-12 months of cash reserves on your first property. If you have a renter in stand by for your unit, that will also help prove to the FHA that you will change primary residences.

If I am understanding you, you want to buy a 4plex, live in 1 unit and finance it with FHA with 3.5% down as an owner occupied unit. Then in a few years once you have enough equity/paid down you want to refinance it as a conventional loan and start looking for another mutli family to live in so you can get the 3.5% down again, is that correct?

Yes, like the other have said too. You can only take the 3.5% down payment with a owner occupied property, so you would need to move for each new one.

Like Dana said, there are reserves requirements and you will need to show the rental income on your tax returns for 2 years to use the income to qualify.

Don't forget the equity issue.. Because it is a 4 unit, the downpayment requirements on conventional (even for a primary residence) go from 5% (1 unit) to 20% (2 units) to 25% (3-4 units).

You can't refinance out of FHA to conventional without having the equity, and you can't get another FHA unless (again) you show equity. This is to prevent people from using FHA (too much) to purchase properties that turn into investment properties.

Like Brianna said, you need 2 years or tax returns showing rental income before you can use that income to help you qualify for a new purchase (I imagine it will come in handy). That's also 2 years you need to focus on creating enough equity to allow you to refinance ..

is there a minimum time frame i need to have the FHA loan? Lets say hypothetically i get 25% equity in the first home within 6-12 months or so. Is there anything stopping me from a refi and going for another FHA loan under that situation?

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