Cashout Refinance our of FHA or HELOC

7 Replies

Hi, I’m just about ready to get my feet wet, but trying to make the best of my situation.

So here’s my scenario, 

Currently, my primary residence is under an FHA loan for 115k, haven't gotten an actual appraisal yet but I'm estimating a 160k appraisal with the updates and hot market, last year it appraised at 141k when I bought it foreclosed for 120k.

I realized it's not as much equity as most people trying to do the same, but I'm gonna try. I was looking to get a HELOC for the equity to use as a down payment on a live-in duplex or 4plex, the lowest % down of conventional loans I was able to muster up was a 15% down conventional loan from Wells Fargo. So I either go that route, or Cashout Refinance out of my FHA loan on my primary residence, and use that for part of my down payment, plus I would be able to use the 3.5% down FHA loan again to buy another live-in duplex or 4plex.

I was wondering what insight you pros have and what your suggestions would be and or finding any underlying issues on my plans to purchase my first investment. Any ideas or input would be much appreciated.

My boyfriend successfully did a cash out refi on his FHA loan for our next property’s down payment. Be SURE that there is no owner-occupancy clause with the refi if you want to use FHA again immediately.

Currently FHA loans carry PMI for the life of the loan, so you’ll want to refi eventually anyway to get rid of the pesky fee

@Johnny Moua if you are using an FHA to purchase your next property then you will need a good reason to receive ANOTHER FHA loan. Meaning, you technically cannot have 2 FHA loans at the same time without just reasoning. Reasoning being:

  • Your family unit grew (thus needing more space)
  • Your commute changed because of a job transfer (usually a radius of about 90 miles is needed depending on the market)
  • Some other reason like divorce, etc. that would justify needing another FHA loan and keeping your current FHA loan

Now, another very strange but burdensome requirement to FHA loans is if you needed the rental income form the property you are vacating to qualify for the new FHA loan then that property is required to have 25% equity in it. *WHEW* That's a lot.

  • So if you don't need the income to qualify, then it doesn't matter.
  • If you do need the income to qualify, then you will be required to have a 2nd appraisal on that property in order to prove 25% equity in it.  Then they will allow you to count the rental income.

Lot's to know.  My highest recommendation is to speak with a loan officer right away in order to know what you need to qualify.  Also, not every bank is the same.  If the loan officer you are in front of doesn't know what these conditions are right away it might mean you should need to look elsewhere.  Some other questions to ask the bank about lending to investors:

  1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
  2. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
  3. What is my minimum down payment required? (not so important but if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
  4. Can I change title to my LLC?
  5. Do you sell your mortgages?
  6. Can you explain to me what your reserve requirements are?

Lot's of information on this post so feel free to tag me with any questions.  Thanks!

@Andrew Postell yea you're a boat load of knowledge I wouldn't even have thought to ask half those questions, so if I Refinance my current FHA loan into a conventional loan but still keep it as a rental, and try to get an FHA loan again, (since my current property will be under a conventional loan after the cashout refi) I would still need a valid reason for the FHA loan huh?

I heard from a loan officer and a few investors, the underwriters are most likely going to catch the fact I refi'd out of an FHA just to use it again and are still gonna want a valid reason. Thoughts?

Originally posted by @Johnny Moua :

Hi, I’m just about ready to get my feet wet, but trying to make the best of my situation.

So here’s my scenario, 

Currently, my primary residence is under an FHA loan for 115k, haven't gotten an actual appraisal yet but I'm estimating a 160k appraisal with the updates and hot market, last year it appraised at 141k when I bought it foreclosed for 120k.

I realized it's not as much equity as most people trying to do the same, but I'm gonna try. I was looking to get a HELOC for the equity to use as a down payment on a live-in duplex or 4plex, the lowest % down of conventional loans I was able to muster up was a 15% down conventional loan from Wells Fargo. So I either go that route, or Cashout Refinance out of my FHA loan on my primary residence, and use that for part of my down payment, plus I would be able to use the 3.5% down FHA loan again to buy another live-in duplex or 4plex.

I was wondering what insight you pros have and what your suggestions would be and or finding any underlying issues on my plans to purchase my first investment. Any ideas or input would be much appreciated.

 It's all about the numbers.

If you refinance to get away from FHA, does the new loan, without mortgage insurance, make sense?

I would think to maximize your cash out, do the refinance and then do a HELOC; not the other way around because you may limit your max ltv.

Don't commit mortgage fraud.  If there's an owner occupancy clause, adhere to it.

Stephanie