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Creative Real Estate Financing

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Chris Dudine
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Question regarding recycling FHA loans

Chris Dudine
Pro Member
Posted Apr 30 2022, 12:04

Hi everyone, question regarding FHA loans. I've heard on several podcasts recently about refinancing an FHA loan into a conventional mortgage, to free up your FHA loan for reuse. How many times can this be done? Can you keep doing that endlessly, as a strategy to keep getting low-downpayment loans for acquisition? What are the pros and cons of this strategy? It sounded solid, but they didn't go into the details.

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Andrew Garcia
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  • Charlotte, NC
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Andrew Garcia
  • Lender
  • Charlotte, NC
Replied May 4 2022, 11:59

Hi @Chris Dudine, I know I am a little late to the party but I just came across your post.

To answer your first question, it can be done up to 10 times. You can own up to 10 properties with conventional financing. 

There are pros and cons to this strategy so I will give a brief overview below:

Pros:
1. Lower down payment requirements. 

2. Lower interest rates with primary pricing.

3. Ability to buy a new one every year.

Cons:
1. Upfront Mortgage Insurance Premium. You will have to pay an upfront fee to the Department of Housing and Urban Development for doing an FHA loan. It is 1.75% of the loan amount. You can finance this into the loan amount, but it will increase your principal balance and monthly payments.

2. More stringent appraisal and inspection process. FHA is more risk-averse when it comes to appraisals and inspections. They have higher standards than conventional. Many sellers will not do any repairs in today's market, so it is more likely for a deal to fall through with FHA.

3. Harder to get offers accepted. Sellers and listing agents are not supposed to discriminate against FHA buyers. However, it is the harsh reality of today's market. They are scared that the buyers do not have the ability to close and of that more rigorous appraisal and inspection process.

4. When refinancing, you will have to pay a second set of closing costs and you cannot refinance until it is at 75% LTV for conventional financing. That means that if you are doing this for the down payment, you will have to wait until the home appreciates or you pay down the balance.

5. Higher monthly mortgage insurance depending on your credit score, LTV, etc.

I would also recommend looking at 5% down conventional loans because the PMI drops off at 80% and you do not have to refinance into an investor loan. You can just buy it with primary pricing then keep it.

Obviously, this is a brief overview but if you have more questions or want a mortgage strategy session, feel free to ask.

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Chris Dudine
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Chris Dudine
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Replied May 4 2022, 13:32

Thanks for the info, I appreciate the feedback. In addition, I forgot to ask what difference it would make if I was to use a DSCR loan each time I refinanced the FHA to use it again. Would that be a better way to use this stretegy? Thanks

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Andrew Garcia
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Andrew Garcia
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Replied May 4 2022, 13:44

@Chris Dudine, A DSCR loan would be largely similar to a conventional loan. DSCR would not require an income or credit check, they would base it off the rent compared to the mortgage of the property you are purchasing. Underwriting will be easier with DSCR but the rate will be higher. DSCR is a better option if you want to move quickly once you get your FHA back because if you refinance into conventional with primary residence pricing, you will need to live there for 6 months after.

I would make sure that you get a side-by-side comparison between rates, fees, APR, closing costs, etc. to determine which product is best for you. Let me know if you ever want that or if you have any other questions.

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Albert Bui
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Albert Bui
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Replied May 6 2022, 18:04
Quote from @Chris Dudine:

Hi everyone, question regarding FHA loans. I've heard on several podcasts recently about refinancing an FHA loan into a conventional mortgage, to free up your FHA loan for reuse. How many times can this be done? Can you keep doing that endlessly, as a strategy to keep getting low-downpayment loans for acquisition? What are the pros and cons of this strategy? It sounded solid, but they didn't go into the details.


There is no limit to rinsing and reusing FHA or VA with conventional refinances. I've had people go back and forth reutilizing each back and forth till desired wealth results.

Eventually you do progress to the bigger leagues and can still use FHA or VA but you won't need any more at a certain point.


Let me know if you have particular questions about the strategy whether it's cash out or purchase or timing or title seasoning of these products. This is where the rubber meets the road when it comes using FHA / VA for BRRRR's.

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Chris Dudine
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Chris Dudine
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Replied May 11 2022, 00:27

Thanks so much for your replies, I really appreciate the feedback.  Hope all is going well for you in all your investment endeavors!