When to Refinance on a Duplex

Question

I am currently house hacking in a live-in flip duplex. The downstairs unit is completely renovated and generating market level income. The upstairs unit, where I currently live, is being renovated. At the current renovation rate, I should have the upstairs unit completed by May 2020.

I would like to take advantage of the low interests rates today, however, I am teetering at at the 80% LTV point with the current condition of the house. Do I:

-Refinance now out of my FHA into a conventional mortgage to take advantage of the better interest rates and risk paying mortgage insurance (which drops once I reach 80% LTV)

-Keep paying the high rates and refinance once the renovations are complete

-Utilize a third option

Aline Zamora · Answer

Your Duplex is under our name or under LLC name? I'm in the same situation looking for Refinance after the remodeling. It's hard to find a lender with approval loans under the LLC and on another hand, I don't want the liability to keep the property under my personal name. Do you have any recommendation?

Chris Levarek · Answer

@Michael Craig On duplexes, I've only been able to get 70% LTV or 75%LTV on an investment property. Perhaps, I'm misunderstanding but I would say the rates will not vary that much by the time you get the value up. I'm more in the Buy and Hold so I think long term, meaning execute the plan fully to be able to pull out the max amount of equity to continue the long term play. No point in getting a good rate that doesn't cash flow long term anyway due to some type of PMI.

@Aline Zamora Typically you will find 20 year loan amortizations with commercial lenders for properties under a LLC name. This can often skew the numbers if originally calculated at 30 year amortizations or residential financing. I suggest, having an umbrella insurance policy on the property if it is in your name for loan purposes. The umbrella insurance policies are common action in this case and adequate protection on these small properties.

Eric Veronica · Answer

@Michael Craig If you are looking to get a conventional mortgage it is very likely that your renovations will need to be completed before you will be able to refinance.

As far as the value is concerned, if your income is under 80% of the area median income level you may be able to qualify for a homepossible conventional loan which would be desirable even if the appraisal came in a little lower and you ended between 80%-90% LTV.

Aline Zamora · Answer

Thank you so much!

Dan Maciejewski · Answer

Do you have a mortgage broker you trust?  They should be able to give you all the scenarios and show you which would be best for you.   Maybe even talk to two to see if they match.

Nobody's going to predict rates in the next year but they can still give you an idea of what each looks like.  And don't forget, you have to pay closing costs, too.

When to Refinance on a Duplex

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