$425K FHA Closing Soon — Advice on Rate & Refinance Timing

Anchorage, Alaska
Buying & Selling Real Estate
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$425K FHA Closing Soon — Advice on Rate & Refinance Timing

Patrick Cunningham
Homeowner · Anchorage, AK · Member since 2024 · 4 posts · 4 votes

Hi everyone,

I'm closing soon on my first property, an FHA loan for a $425K house, and I'm trying to figure out what interest rate I should lock in. My current options are:

  • 5.625% → 0.375% adjustment fee at closing

  • 5.75% → $522 credit toward closing costs

  • 6.25% → $3,651 credit toward closing costs

I'm hoping to lock in by the end of this week. My plan is to potentially refinance into a conventional loan before the 12-month FHA occupancy requirement ends so I can buy another duplex next year with an FHA loan. I realize refinancing could cost a lot and I might not have much equity at that point, so I'm unsure if it's worth it.

Should I:

  • Go with the lowest rate and pay the adjustment fee at closing, holding onto the FHA for now, then buy another property next year with a conventional loan?

  • Choose a higher rate that gives more closing cost credit and refinance into a conventional loan within 18 months?

Longer-term, in year 3, I'd like to pull equity out of this property via a HELOC, though I've heard that may not work with rentals. I might end up refinancing again to access equity before buying a live-in flip deal.

My main question: Which rate should I lock in, and should I refinance soon to buy another FHA property, or wait to refinance until I can pull equity for a live-in flip?

This is my first property, so I’d really appreciate advice on which rate and strategy might make the most sense given my goals.

Thanks!

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  • Ricardo R.Pro Member
    Property Manager · Michigan Ctr, MI · Member since 2016 · 663 posts · 581 votes
    1y

    Patrick — congrats on the first deal, that’s a huge step. You’re asking the right questions because this is where a lot of people get tripped up on the long game.

    Here’s how I’d think about it in your shoes:

    1. Locking the Rate
      At $425K, a quarter-point difference in rate has a much bigger long-term impact than a couple thousand in credits upfront. That 5.625% rate — even with the small adjustment fee — saves you way more in monthly cash flow than the 6.25% option. Unless you’re super strapped for closing costs, I’d lean toward paying for the lower rate. Think of it as “buying down” a better cash-flow position.

    2. Refi Timing & FHA Strategy

    • You're right that FHA requires 12 months of occupancy, so realistically you're looking at a refi into conventional after year one.

    • If you want another FHA in year two, your only path is to stay in this one, refi to conventional after 12 months, and then use FHA again.

    • Keep in mind: refis aren’t free. Closing costs and a new appraisal can eat $5K–$7K easy. If rates don’t drop significantly, it’s often not worth rushing.

    1. Equity Pulling Later

    • A HELOC on a rental is tough. Some local banks and credit unions do them, but most won't.

    • A cash-out refi is more likely. Year 3 or so is a realistic timeline, especially if appreciation or paydown gives you enough equity. That’s the right time to think about pulling equity for the live-in flip.

    1. Big Picture

    • If your plan is growth, the priority is control over monthly payment so you’re not house-poor and can still save toward the next down payment.

    • Chasing the bigger lender credit now only makes sense if you’re short on cash to close. Otherwise, the lower rate is the better move.

    So if it were me:

    • Take the 5.625% with the small adjustment fee.

    • Stick it out for the first year, then reassess where rates are. If conventional rates are lower than FHA, refi then. If not, hold steady.

    • Focus year one on building reserves so you’re ready to jump when the next duplex or live-in flip deal shows up.

    You’ll thank yourself later for locking in the stronger payment today, even if you end up refinancing down the line; I really hope this helps you I sent you DM on BP and hope you are able to help us out. 

    [email protected]810-844-1104
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