Hey everyone! I've been trying to understand this information myself, but I've been getting confused, so I'm hoping you guys can share some of your money-magic wisdom with me. Feel free to correct any assumptions I have, my knowledge on the finance end is really rough. Any input or suggestions are EXTREMELY appreciated.
I own one duplex, bought with 3.5%dp FHA 1yr ago, live in one unit, rent the other. That being said I want to buy more rental properties and we want to buy our home, the money-pit single family (haha). How/can I refinance/leverage my FHA to make the down payment to buy our home and/or another rental? Would LTV be too low (for cash out to matter)? Would they not let me because it's an FHA? Do I need to refinance then move out (and not tell them I'm refinancing to buy more houses)? Will my DTI be too high?
Super rough calculations of my current and possible future amounts based on my (very rough) understanding of how banks give loans
Debt: $206k on mortgage ($213k to start) + $9k student loan ($1325/mo -> house, $130/mo -> student loan minimum)
Income: $1300/mo rent + $90k W-2
Projected refinance value: $280-$300k, rent increase to $1350-$1400 (each unit)
Possible 1st rental (new) monthly: ??? 15%dp on $280k would be $1275/mo but only $32k out at 100% LTV ($25k out at 80%? Where do you calculate the 80% in the "equity" money or from the total????)
Possible 1st home: $400k with 5%dp conventional = $2137/mo at 4.15% ($30k total needed to buy?)
Possible 2nd (MF) rental: $220k with 25%dp = $1050 at 6.15% ($65k total needed to buy?)
So then... I'd get $32k out from my current property at 100% LTV ($25k at 80%?) which would barely cover the 2nd home, not at all buying a second rental by itself since you have to put down so much more for non-owner occupied properties. And I don't think my income ~$105k = $8800/mo (since only rental income from the past year is counted- not projected future) isn't enough for the 1/3 to qualify if I had just the rental and single-family ($1275+$2137=3412 is 38% of my income). *Also I have pretty good credit (over 750) and some savings.
Thank you so much, joining this community and reading your stories and shared knowledge has helped me so much and is probably why I was able to get into housing in the first place, 2yrs ago I had no idea about any of this and now I own my first property, rent out a unit, and am looking at my next property. It's crazy how much my life has changed thanks to people here and all the knowledge you share with the community! :)
Originally posted by @Jason D. :
@Jade Ferra you have the right mindset, but the numbers just aren't there yet. Just so I'm straight.... you owe $206k on your home that is now worth $280k? Cash out refinances generally require 20% equity, so you'll only be able to get a loan for $224k, but after closing costs, you're about where you started. I think your best bet is to save up the 5% DP for your next primary, rent both sides of the duplex, then save for a BRRRR type deal, where you can start re-using the same down payment to scale from going forward.
Thank you for your response, Jason!
$280k is what I'm thinking it will be worth, I am still fixing it up. When I move out in a year and a half (or the plan anyway) all renovations will be done, and at that point I'll get an appraisal. Based on what I see in the area $280k should not be a problem at all. The house is in a good location and a lot bigger than the $280ks I saw anyway.
I could do 5%DP right now on a primary with my savings, but that would be all my savings, but in a year that should be much more generous.
So you think I should refinance to lower my monthly payment (once I am finished renovating) and just pay from my savings for primary? And just do 20%DPs on rentals going forward and try to roll it forward (I imagine once I get 20%DP going in BRRRRs the refinance into the next property will be able and worth it).
I definitely wanted to do 20%DP and after renovations refinance into the next property and so on, but I don't have enough savings for that and we're going to need to move closer to the city once my SO graduates (year and a half) for him to get a better job.