Yemassee, SC · Member since 2016 · 3 posts · 2 votes
If a person were to do a house hacking strategy with an FHA loan with the 3.5% down payment and then live in the residence for the required year's time would you be able to refinance into a conventional mortgage and if so will the refinancing come with the standard 20% down? Also once you have refinanced into a conventional mortgage I would assume that you would be able to repeat the house hack by living in another property for the 1 year's residency requirement and refinancing out again.
Any corrections and points that I’m missing would be very much appreciated.
Yes, this strategy is great if you perform an equity play. You have to be able to force appreciation somehow to make your exit strategy work. You have a good "monopoly" mindset, lets see how we can make it work for you.
The goal with Real Estate investing is to become wealthy. The best way to become wealthy is to increase your net worth each month/year. With this strategy you will lose money each time you do this because you're just buying "list price" houses.
This strategy might work if you can find 4 units that cash flow WHILE you're living in the property. (But think exit... we still can't refi out)
You lose money because:
You throw away that 3.5% down. That is equity you cannot get back out because your LTV is at 96.5%.
Closing costs. By the time you close you'll most likely be OVER 100% LTV.
Refinance time:
This is your exit strategy, a great one IF you had equity. The house you bought was in "livable" condition because FHA loaned you money on it. Lets say your house appreciated 1%-3% over the course of the year. You're still far away from the conventional LTV of 80/20.
Even if you were able to, refinancing so soon would add in MORE closing costs and you would start a new 30 year note. After a year of paying mostly interest due to the amortization rate:(
And once you have multiple properties, there are guidelines on reserves. Typically 6 months of mortgage, taxes, insurance. So in addition to all the costs of refinancing you will need another large chunk of money.
My "newbie" wisdom:
Find a way you can force appreciation with the low money down. Fannie May has a loan program, the homestyle that requires only 5% down. With this product you have a better chance of creating equity. That equity play allows you to pull your money back out and repeat the buy, rehab, rent, refinance, repeat strategy and obtain the house with no money out of pocket.
Think down the road as well, some banks allow HELOC up to 100% LTV. You can use this, partner with hard money and do the BRRRR strategy. Then do EXACTLY what you said you were going to do with a LOT less hassle of going conventional "list price" FHA homes. (Just a recommendation to get your creative juices flowing)
My advice:
If your brand new, then a FHA house hack is an amazing way to get started. Try to live for free while renting out the other units.
On the next one, find a way to do that equity play. Force appreciation. There are multiple ways to get this done, partner with someone, hard money, etc. The goal is to pull your money back out.
I think that you've got the facts straight here. Are you house hacking a multi family or a single family? Are you using a 203K loan? If you're buying a single family, I think you can get a conventional loan with less than 20% down. Another option is to put a HELOC on the multi family if you're living in it. That way you can recoup about 15% of that 20% down payment. Owner occupied HELOCs are at about 95% LTV currently (Huntington). No charge to set up the line. PM me if you have specific questions! Good luck. House hacking is the way to go!