Refinancing from FHA to Conventional with 20% equity?

Question

Hello! I originally purchased a 3 family home in 2018 using an FHA loan (4% interest rate). Thanks to the current market climate, I have about 21% equity in my house now (assuming the "Zestimate" on Zillow is correct). I want to refinance to a conventional loan to 1) save on interest and 2) get rid of PMI.

However, I do not live there anymore, so it would be refinanced as an investment property. I read that you generally need 25% equity for an investment loan, but has anyone heard of getting an investment loan with only 20% equity instead of 25%? If so, where should I look for these loans?

Stephanie Medellin · Answer

Account Closed  Appraisal waivers are great, but 2-4 unit properties, and properties using rental income to qualify are not eligible, so you're going to need to get an appraisal for a conventional loan.  If it doesn't come in at the value you need, you can always pay your loan balance down enough to have 25% equity.

Account Closed · Answer

@Stephanie Medellin that’s very helpful, thank you! it seems like my best choice then is to continue putting some extra towards my mortgage so I can hopefully get to 25% equity while the market is like it is

Account Closed · Answer

@David Kelly thank you for the info. That's a good point, I could look for a lender willing to use a higher property value. By my calculations, the value would have to be almost $20k higher for me to qualify for the 25% equity requirement. The zestimate seems pretty accurate when I compare my home to recently sold homes in my area. I'm thinking my best course of action will be making extra payments towards my principal, combined with finding a lender that is willing to use a higher value for my property. Then hopefully I can refinance a lot sooner than if I just waited until I accrued 25% equity.

David Kelly · Answer

@Sarah Z.

There is a chance that a lender can put in a higher value and get property inspection waiver and not need to have it looked at. In this case you can just use that value and finish up the loan.  Right note they are easier to come by.

I wouldn’t use Zillow as a solid reference. Do some of your own research and look at similar homes in your area and what they sell for recently. ￼￼