Refinancing rehab that we're moving into, is conventional best?

Question

We're finishing a BRRR that we've decided to move into for two years. We're planning on using a conventional 30 year mortgage unless there is something better that I'm missing. We're looking at a just under 7% rate, no points, with one free rate reduction within the first year (cause rates are doing down, right?!?!)

Are there any better options? Thank you!

Nick Belsky · Answer

@Eric Miller

Best depends on what is more important to you... lower costs or lower rates.

Typically, conventional will have lower costs as there are no funding fees and such.  They also have lower PMI costs (if your LTV is over 80%).

FHA will have lower rates, higher PMI costs (if your LTV is over 80%), and higher overall costs as they have a set funding fee.  You can roll this into your refi though... or not... it is your call.

Working with a mortgage broker can help you put these options side by side and ensure you are getting firm numbers.

Cheers!

Patrick Roberts · Answer

Check with local credit unions about any portfolio programs they may have right now. Normally, I wouldnt recommend a credit union because they typically have horrific lending infrastructure and take 6-8 weeks to close a loan, but it sounds like you have the luxury of time since you already own the property. If youre under the gun and need to close quickly, work with a specialist lender or mortgage broker to refi into a Conventiona loan.

I probably wouldnt look at FHA unless you have very high DTI or bad credit. FHA loans are govt subprime and are very expensive for prime borrowers.

Garrett Creswell · Answer

Sounds like you’ve set yourself up nicely. A conventional 30-year mortgage is a solid route, especially if you're getting that free rate reduction option baked in.

That said, your best best is to talk with a lender in your area. Depending on your goals, there might be a few alternatives worth considering. Let them know what your hoping to do and they'll be able to help set you up with the best option

Elias Halvorson · Answer

With regards to other options, FHA and USDA could be options, but more info is needed. For USDA there are stringent DTI requirements and income ceilings.

Elias Halvorson · Answer

Eric, lenders typically need more information to provide you an accurate quote. Property value, loan-to-value, your credit score, and type of property (SFH, condo, etc) are just some of the things. Not knowing any of these and assuming you have a 760+ credit score, and it is a SFH then the rates Im seeing in Hawaii and WA (the states Im licensed in), for a SFH are around 6.375% (6.41% APR) for a 75% LTV and 6.5% (6.55% APR) for 80% LTV.

Cheers