FHA refinance & rent out home - Does it make sense?

5 Replies

Hello everyone, 

I'm trying to figure out what the best financial decision would be for refinancing / renting out our home and was hoping someone can help with some advice.

My wife and I are purchased a townhouse in Aug 2008 for 205k and have paid extra principle to get down to 149k remaining. The home is worth approximately ~170k with a conservative estimate based on nearby comps. The loan was an FHA 30-yr for 5.875%, of which we no longer pay mortgage insurance since we are now below 78% LTV.

I'd like to refinance to a new 30-year and rent the property out for 1.4k monthly on an ~1k mortgage (after refinancing) while the family and I rent out a nearby home for a similar price as our current mortgage of 1.4k, for about 2 years. This way we can remain flexible and continue to save money for the down payment on a future home. If we refinance with an streamline FHA loan will we be required to start paying Mortgage insurance protection again? (I heard all FHA loans now have MIP for the life of the loan). Will we be legally able to rent out the home if we go through this or have to wait for some timeframe? Does this all sound foolish? Thank you for any help you can give!

I'd probably refinance to save money.  I don't think you will have to pay MI if you refinance for under 80% of the appraised value and I think they can use the 2008 appraisal.  The interest will probably also be lower, I'd shop around for the best rate.

@Glenn Gomba I would refinance just to get a lower interest rate, call a couple banks and see who is competitive. As for your plan to rent your home, then you rent a home and pay more money then your mortgage to save for a home the numbers don't seem to justify what you are saying and I believe you should stay in your primary as you would be able to save money fast. 

I think your idea of just staying put is a solid idea, at least for a little while longer. I forgot to mention the home is getting a bit tight for us: 1000 sq ft, no basement nor garage and with one baby and another on the way! We are thinking of doing the FHA streamline refinance and staying put for 1 to 1.5 years to save up more cash, then afterwards renting it out once we have 20-25% for our next home plus enough emergency cash in case if we have a nightmare tenant situation.

  I'd just hate to sell this place at a loss and I'm very intrigued at the idea of being able to hold onto it as a longer term investment. Hopefully we can manage to make it work

Originally posted by @Glenn Gomba :

Hello everyone, 

I'm trying to figure out what the best financial decision would be for refinancing / renting out our home and was hoping someone can help with some advice.

My wife and I are purchased a townhouse in Aug 2008 for 205k and have paid extra principle to get down to 149k remaining. The home is worth approximately ~170k with a conservative estimate based on nearby comps. The loan was an FHA 30-yr for 5.875%, of which we no longer pay mortgage insurance since we are now below 78% LTV.

I'd like to refinance to a new 30-year and rent the property out for 1.4k monthly on an ~1k mortgage (after refinancing) while the family and I rent out a nearby home for a similar price as our current mortgage of 1.4k, for about 2 years. This way we can remain flexible and continue to save money for the down payment on a future home. If we refinance with an streamline FHA loan will we be required to start paying Mortgage insurance protection again? (I heard all FHA loans now have MIP for the life of the loan). Will we be legally able to rent out the home if we go through this or have to wait for some timeframe? Does this all sound foolish? Thank you for any help you can give!

 HI Glenn,

If your credit, income, and assets are good you should look into a regular conventional refinance. If structured correctly you will not have monthly MI (paid via LPMI - lender paid).

The premium you'd pay over the market rate shouldnt be much to eliminate your MI because you're at around 87% LTV (149 bal /170 value), probably a .25% rate premium. So what this means if the market rate is 3.875% 30 year then you'd get about 4.125% with no monthly MI, make sense?

149k @4.125% is around  722 dollars a month so you should be able to cash flow pretty decently even with tax and insurance factored in.

Your other issue you will deal with is if you refinance as "primary residence," you will not be able to finance/find/purchase another primary within 6 months to 1 year because you've already claimed a primary residence for that year. Where I am at I cannot file two primary residences within 6 months, mostly due to secondary markets not wanting to buy a note that might not be sellable  (two primary residences within a 6 month period...).

This is why mortgage planning is so important.

@Glenn Gomba :

To answer your questions:

* Yes, if you refi to a new FHA loan there will be MI. If your LTV is 90% or lower, then MI will drop off in 11 yrs.

* If you do the refi as a FHA Streamline Refi (i.e. take the existing FHA loan amount and roll it into a new loan), then there is no additional requirement to owner occupy the property. You can rent it our right away. In fact, you can do a FHA Streamline Refi on an investment property.

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