To refinance or to not refinance

Real Estate Agent · Orlando, FL · Member since 2017 · 14 posts · 4 votes

So I purchased my first home in 2021 before interest rates skyrocketed with an FHA loan at 3.5%, and now I househack that property. Im interested in buying my second property. I live in Florida space coast and have been hearing that a lot of people refinance out of fha to a conventional loan, then use the fha again for the second property, and so on. Is this a good strategy? Wouldn't my interest rates be higher? Is it worth it? I'm just looking at options on how to buy the second property, please help.

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Rick Albert

Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes

It is not just the interest rate but also PMI. I would look into refinancing and compare it to what you are paying now.

Otherwise, look into 5% conventional. I wouldn't lose the FHA rate if the cash flow is there.

If the numbers work with the refinance so you can get another FHA, then it could be worth it.

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Rick Albert
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
1y
It is not just the interest rate but also PMI. I would look into refinancing and compare it to what you are paying now.
Otherwise, look into 5% conventional. I wouldn't lose the FHA rate if the cash flow is there.
If the numbers work with the refinance so you can get another FHA, then it could be worth it.
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Devin PetersonBusiness Member
Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 664 votes
1y
Quote from @Adalberto Alvarado:

So I purchased my first home in 2021 before interest rates skyrocketed with an FHA loan at 3.5%, and now I househack that property. Im interested in buying my second property. I live in Florida space coast and have been hearing that a lot of people refinance out of fha to a conventional loan, then use the fha again for the second property, and so on. Is this a good strategy? Wouldn't my interest rates be higher? Is it worth it? I'm just looking at options on how to buy the second property, please help.

If you can refinance to get rid of PMI that's one thing, but if you're looking to house hack and use FHA again to put only 3.5% down then you would have to get out of the current FHA loan if you are buying within 100 miles.
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Brittany MinocchiBusiness Member
Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
1y
If you can qualify for conventional on your next property, I wouldn't refinance your current one because yes, your rate will be higher. Refinancing isn't free, so you'd also need to look at your break-even point. The second property will require 5% down with conventional since you aren't a first time home buyer. If your DTI, credit and down payment are all solid, that's the route I'd take. Plus, PMI can potentially drop off of that loan once you have enough equity.....not the case for your FHA loan.
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Ryan RomingerBusiness Member
Real Estate Broker · Indianapolis, IN · Member since 2018 · 340 posts · 144 votes
1y
Refinancing your FHA loan into a conventional loan to free up your FHA eligibility for a second property can work, but there are trade-offs. Yes, today's higher interest rates mean your new conventional loan will likely have a higher rate than your current 3.5%, so you'd need to run the numbers to see if it's worth it.

The upside is that using FHA again lets you put as little as 3.5% down on your next primary residence, keeping more cash for future investments. The downside is that refinancing resets your loan terms and could come with closing costs.

If you have strong credit and enough equity, you might also consider a HELOC or home equity loan instead of refinancing.
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Ko KashiwagiPro Member
Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
1y
Congratulations on the first house. I agree with the others - unless you are getting rid of the PMI conventional at 5% down sounds like a much better option. Conventional has slightly higher rates but Underwriting is less stringent as well
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Zach BossonBusiness Member
Lender · Member since 2023 · 42 posts · 15 votes
1y
Quote from @Adalberto Alvarado:

So I purchased my first home in 2021 before interest rates skyrocketed with an FHA loan at 3.5%, and now I househack that property. Im interested in buying my second property. I live in Florida space coast and have been hearing that a lot of people refinance out of fha to a conventional loan, then use the fha again for the second property, and so on. Is this a good strategy? Wouldn't my interest rates be higher? Is it worth it? I'm just looking at options on how to buy the second property, please help.
Adalberto! A few things.
1. If you're buying a new primary in many cases you can simple buy again with an FHA loan allowing you to retain the low rate on your current, you'd have to have a qualifying event which is usually manageable.

2. If your credit is strong enough, and if you're considering cashing out your current primary into a conventional it'd have to be, then you could just buy the next home with a conventional loan avoiding the need to refinance(assuming you have the cash for a down payment)

Is your your goal to use an FHA loan is to be able to put 3.5% down instead of 5% down?

1. If you're taking cash out of the home, getting to 5% shouldn't be an issue, so you could buy the next home conventional.

2. If the 1.5% is causing a stretch, I might recommend waiting until you have enough saved before cashing out your current home, increasing it's payment, and adding a new home in the mix!

Finally, a HELOC/HELOAN is an option, we specialize in those. Giving you access to your equity on your current home while retaining your low rate allowing you to buy the next place, and potentially have a little extra for the new expenses that might come up owning 2 homes. You'd want to make sure you understand if the property cashflows, would the rents be larger than the 2 mortgage payments? If not are you comfortable at a breakeven/loss to scale?
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