ReFi out of FHA?

Question

At what point would it make sense to refi out of an FHA into a conventional loan? I got in under 4% , so I don't know if I'd get a much better rate. Also, after I wait one year from the close date of the FHA loan, and refi out, could I then get another property with FHA? I know they have those "special circumstances" under which it's acceptable to have two, but I'm talking about closing out one and opening a new one.

Any thoughts?

Jameson Sullivan · Answer

I'm currently working to finance a 4plex fha then  add value over the year I am living there and refi into a new loan using the forced appreciation as my "down payment" on the new loan  and getting my cash out.... I'll let you know how it goes for me !

Brent Coombs · Answer

@Mark Douglas, should be OK. FHA-approved loans aren't just for first home buyers only; but yes, it's supposed to be only one FHA-approved loan at a time (for the home you live in).

When you move, why not refi THAT home conventionally, keep it as an investment, hence: BRRRR!

The main trick is: because you (probably) only started with 3.5% deposit, for each subsequent FHA-loaned home you're prepared to live in, you should also value-add to it on top of the forced equity you already gain by paying UNDER market value in the first place! (Otherwise, you won't get back the 20-25% deposit you need to refi out of each earlier FHA-approved loan). All the best...

Jameson Sullivan · Answer

@Joshua Hively That deal fell through and I ended up buying a single family fixer. I'm going to sell as the rents in this area aren't strong enough to justify me refiing all my cash out, the numbers would be too thin. i'll likely net 60 to 70k on the deal, tax free, after two years which is roughly 100% COC.

Albert Bui · Answer

HI Mark,

Depending on what your starting MI rate was, probably .85%, your real rate or effective to use for gauging a decision would be 4.00% mortgage rate + .85% = 4.85%. So when you're looking at refinancing into a no MI option like conventional financing just think of comparing 4.85% to the new conv rate.

Another consideration is that MI deduction starts to phase out by 10% increments for ever 1k of income you make over 100k (not tax advice, seek a pro) and it phases out completely at 110k AGI or adjusted gross income (line 37 on the first page of your tax return).  Why is this important? because if you cannot write off your .85% FHA annual MI then that means you're paying a higher rate on this money (using after tax money to pay it).

If you're in the 30% bracket taxwise, the .85% becomes 1.21%.

So if you're in the 30% income bracket your effective rate is now the 4.00% mortgage rate + 1.21% = 5.21% effective rate that you're paying now.

So if you found a conventional option for lets say 4.75% you know know you're going to save .46% or 46 basis points in rate each year assuming no closing costs.

The other thing you'll have to look at are the closing costs of the refinance option.

Hope that helps.

Diana Muresan · Answer

@Mark Douglas only FHA loan at a time. How much equity do you have in your current MF? You didn’t mention if you currently reside in the property and how long you had the FHA loan. What is the value and what is the mortgage?

Few pop took here, though I can Taylor more once you clarify the questions above. You can refi cash out if you reside there for at least 12 mo and purchase another owner occupied on conventional FreddieMac HomePossible with 5% Downpayment if your income is below your county median including the net income, of course you will need to convince an underwriter this is an owner occupied purchase. If you don’t currently reside in the MF it will be tough to get an another owner occupied loan on either FHA or conventional. Other option is to refinance conventional and get rid of your MI which is pretty high at 0.8-0.85% based on your initial downpayment, really depends on how much equity you have. You can refi OO (owner occupied) at 80% LTV and purchase the next MF with FHA, only caveat here is that you cannot do 2 owner occupied purchases within 12 months with the same lender, divide and conquer. I do lots of multiunits and do-host seminars as well, I tell buyer that ideally is to purchase first MF conventional with 5% down and the second one as FHA since you don’t need to redo the first one also you can get rid of the MI without refinancing.

Mark Douglas · Answer

@Jameson Sullivan Sounds good man, hope it works out!  Please keep me posted!

@Brent Coombs  that makes sense.  thanks !

ReFi out of FHA?

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