Refinancing out of FHA?

Question

Attention all lenders and know-it-alls:

Are there any parameters that prevent you from refinancing out of an FHA loan? That is, once that FHA loan is originated and closed, is there anything that would prevent me from walking across the street to a different bank and having them refinance into a conventional mortgage? Or does the equity simply have to be in the property in order to do so?

Thanks in advance.

Brie Schmidt · Answer

@Clay Manship 10k in repairs might get you an increase of $15-20k in the ARV after the 6 month seasoning period.

At least in my experience.  I did about $60k in repairs on a house I bought way below market - the new appraisal was only for $150k more even though a house across the ally and 2 doors down was sold for $400k more the month before. My lender told me to wait 1.5 years to get the full value

Brant Richardson · Answer

That pesky seasoning period will stop you for a while, whether the original loan is a FHA or traditional.

Clay Manship · Answer

@Brianna Schmidt

Just thinking out loud--if you got into an FHA home with 3.5% down and then made repairs with an extra 10K, could you then refinance using the ARV? And get out of the FHA loan and into a conventional mortgage, in order to escape the PMI?

Joseph Pytcher · Answer

The quick answer is no, as long as you can qualify for a conventional loan, there won't be anything that can stop you (as long as you qualify).

Brie Schmidt · Answer

Are you trying to refi for more than you bought it for?  Then @Brant Richardson is correct, you have 12 months of title seasoning - which means you can only refi for the purchase price during the first year.  Lenders will allow for a 6 month title seasoning with extensive repairs but in my experience if you buy below market and do repairs they still wont assign a full market value in the first 6 months.

Brant Richardson · Answer

Most banks want a 12 month seasoning periond before you can refinance based on the value of the house, as opposed to based on purchase price.  You could do it on purchase price right away but I don't see any benefits to doing that so I'm assuming you are trying to figure out a way to get your down payment back using a loan to value.

Brie Schmidt · Answer

@Clay Manship - I don't understand why would would want a FHA loan if you have the DP to go conventional?  You pay MIP upfront (about $1750 per 100k financed)