Buying second Property After First FHA Duplex

25 Replies

Hi Everyone,

I bought a Duplex six months ago using my tax return. I am looking towards buying my second property this year using my tax return.

I am unsure if i should use a hard money lender and do a flip then getting a mortgage or getting a Second FHA under my girlfriends name

My mortgage lender recommended that i wait to get married as i can get another FHA loan under my girlfriends name.

He also said i should refinance into a conventional loan as the property is still my primary residence. Then get the FHA under her name and buy another multi unit. Then every 6 months we could each get a fha and refinance.

I am looking to add to our real estate portfolio and do not now whether i should work with a hard money lender or do an FHA 203K so i can BRRR.

The money i would have on my end would be from my tax return so it would be about $6,000

Sorry if there is any confusion, but does anyone have any tips?

Thanks,

Hey @Gavin Joel arredondo ! Way to jump in and start the real estate investing journey with a house hack!

In reading your post the thing that jumps out at me screaming is what your lender is saying about the refinance. No doubt it would be a dreamy situation if you could buy a 2-4 unit with a 3.5% down FHA loan, refinance onto conventional 6-12 months later and repeat (twice as nice if you are each doing that). What I don't like here is this:

- What are the odds you will continue to be approved for FHA 3.5% down loans once the underwriters see a recent purchase, recent finance, and a new FHA application? #Lenders I would love to see your thoughts here.

- Whaat are the odds you are going to have the equity or appreciation in such a short timeframe to refinance to a conventional loan within the first year and not be bringing money (and quite a bit of money at that) to the closing table every time.

I want to make sure that you are being guided excellently here.  I've found out about loan restrictions a few weeks before closing WAY too many times to trust a lender I haven't "been in a foxhole with" to know the nitty gritty of the loans unfortunately.

FNMA is set up to give you 10 loans. One for your home and then nine rental properties. 11 forward will be local bank portfolio loans as a rule. I use hard money loans to purchase every one of my houses to keep my down payment as low as possible. I then refinance to conventional the second month.

@Will Fraser Thank you for your reply.

It does sound dreamy but i think i would only like to do one more fha as we are both young and it would be easier. I ideally would like to move to conventional loans since there wont be no PMI but harder cost to entry.

- What are the odds you will continue to be approved for FHA 3.5% down loans once the underwriters see a recent purchase, recent finance, and a new FHA application? #Lenders I would love to see your thoughts here.

As long as i refinance into a conventional loan you i am able to get another FHA i was told.

- Whaat are the odds you are going to have the equity or appreciation in such a short timeframe to refinance to a conventional loan within the first year and not be bringing money (and quite a bit of money at that) to the closing table every time.

The odds are low unless i am able to BRRR then refinance i believe. M lender said i could roll the closing cost into the conventional loan but that obsviously mean a higher mortgage and most likely not worth it.


I think the route i am looking to go is either FHA 203k or FHA a 2-4 multi Unit. Ideally FHA 203K. under my girlfriends name ( not married yet, willing to wait till we FHA another house if necessary).

And maybe keeping the house we are in as an fha loan or refinance as my lender said

OR 

Stay in my 2 unit property, use my tax refund of about 5-6,000 and a hard money lender to flip a home, get it appraised, mortgage, then keep it and rent it. Since i am new to flipping my lender said i will probably need 20% for any hard money lender. 

Do you/anyone have any opinion of what might be a better idea?

Thanks,

@Gavin Joel arredondo Hey there!

Your situations sounds very similar to what I have had in mind. What I was told from my loan officer is that in order to buy a second property via fha at the same sale price you bought your first property at, the 1st rental property must exceed 125% rental income to become preapproved for that same amount once again.

Also mentioned to have a second fha mortgage out at the same time, you have to show proof of a “Living Upgrade” meaning that second property has to show some significant benefit as to why you’re using another fha loan for a second property if you get what I’m saying. Reason was is the mortgage company’s don’t want buyers to use the 203K fha to help build a portfolio.

I've also heard that what you could do is open up a LLC and transfer that first FHA mortgage property into the LLC and then will be able to apply again for a FHA loan.

Hope this helps!

@Stephen J Davis Hi stephen,

Thank you for your reply. can you let me know of how low of a down payment you have gotten?

Can you walk me through your process? are you buying flips with money from a hard money lender then fixing it up and getting the conventional loan?

Or 

Are you just using hard money lenders for a down payment on a different type of loan then refinancing?

Please explain. I live with my fiancee and son, just wondering if getting another multi unit would be better or a flip.

Thanks,

I use hard money for both rentals and flips. The flips I don't refinance into conventional since they usually sell in less than 90 days. I buy the rentals with hard money, complete the rehab and then refinance into permanent loans. I have an average of $18,000 total out of pocket but have done deals with as little as zero down. These are $150,000 to $220,000 houses in Houston, TX. Does this help?

@Gavin Joel arredondo

@Javier K Perea Thanks for the reply!

What did you end up doing?

I can get an FHA under my girlfriends name with no problem, as she is currently not listed on the current home or mortgage. As long as she qualifies i was told. There should be no need to show a living upgrade as i wouldnt techinically be involved in any paperwork.

The LLC idea sounds interested. Do you know if there are any cost with doing that? except for creating an llc.

Thanks

@Javier K Perea actually it is not "Living Upgrade" but defined as "Increase in family size". You have to prove an increase in the number of dependents. So you can't just buy a bigger house, without proof there are more dependents living there. You also need to have 75% LTV on the house you are moving out of or you need to pay down the mortgage to 75% LTV.

HUD guidelines:
https://www.hud.gov/sites/documents/4155-1_4_SECB.PDF

Say for example @Gavin Joel arredondo was getting married, so he would add two new dependents. In that case he could take on a second FHA loan. Assuming his current property is not 75% LTV, this would take some cash so probably defeats the purpose.

It would work to have his girlfriend get an FHA loan, but his name would not be on the loan or title of the property. I guess the only caution is if you are using your money to fund your girlfriend buying a property, make sure you have complete trust.

Gavin, I am wondering why you would refinance the original loan from FHA to conventional? Why not keep the FHA and buy the new home as conventional? Other than your mortgage lender benefiting from writing two loans, I see no benefit to you. In fact, it costs you more because you have two loan origination fees. You can get low down payment options with conventional mortgages and PMI.

Just be aware as you get more mortgages, the underwriting requirements will change. Even if you get a 4-plex, the underwriting requirements are different than your duplex. Depending on the program, they will require higher down payment or more cash reserves. 

Hi @Joe Splitrock

I appreciate the reply. I do have complete trust in my girlfriend, that is not an issue.

I thought of getting rid of the FHA to see if i could lower my mortgage payments.

The reason why i do not want to get the new home as a conventional is that i would not have the capital for the deposit. An FHA would be more affordable.

Do you recommend to go with an FHA 203K or a hard money loan. I am looking for a house that we can BRRR. As the 2 unit we have now there isn't much room for value. Only to finish the basement a bit more and the attic which are basically done.


Thanks,

@Gavin Joel arredondo there has been a lot of great info provided here! To reiterate, for the most part, you can only have one FHA mortgage in your name at one time. There are exceptions, as mentioned, that are few and far between (like if you were moved to another area by your work), but for the most part it's only possible to have one at a time in your name. If two people are on the same FHA loan, then this counts as their one FHA loan.

One strategy, that my wife and I are employing, is to leapfrog who is on the loan. How this would work is one person would buy the first property with their FHA loan, and then when you're ready to purchase the second property, the other person could purchase it with their FHA loan. Yes, this does present the challenge of both individuals needing to be able to qualify for a loan on their own, but it's a great way to do it. Then, when it's time to purchase the third property, you could either refi out of the first FHA loan (if you have enough equity), and then use your FHA loan again, or use a conventional loan product.

This strategy is not without its challenges. One person must be able to qualify for a loan on their own. It works well in Oregon because we’re a personal property, not community property, state. This means that when one of us goes to get an individual loan, the bank will not look at the other person's debts/liabilities.

Game Planning for multiple house hacks can get a little tricky. I have a lender that I work with who's an investor herself and incredible at creating strategies to move forward on your next purchases (she helped us devise our strategy outlined above). If you'd like me to connect you with my lender (she's licensed in all 50 states) send me a DM.

@Chace Fraser Hi Chace you mentioned you have a wife. Doesn't that mean that you can only have one fha between the both of you?


This is sorta what lender tried to explain to me this morning. To not get married yet as my fiancee and I can keep "leapfrogging" and switching between who uses the FHA loan.


Are you also paying your refinance closing cost cash? or are you rolling it into the conventinal loan?

I will DM you soon so that i atleast can ask your lender questions.







@Gavin Joel arredondo great question. We can only have one FHA loan between the two of us if we're both on the mortgage. Only one of us in on the loan and title for our duplex. That means that the FHA product is still available for the other person to use when we go to buy our next property. It just matters who is on the mortgage.

@Ulisses Terriquez there are basically two ways to get out of an FHA loan. First, like you mentioned, would be to sell the property. The next option would be to refinance out of the FHA loan. To do this you would need to have enough equity in the property to do so.

Originally posted by @Gavin Joel arredondo :

Hi @Joe Splitrock

I appreciate the reply. I do have complete trust in my girlfriend, that is not an issue.

I thought of getting rid of the FHA to see if i could lower my mortgage payments.

The reason why i do not want to get the new home as a conventional is that i would not have the capital for the deposit. An FHA would be more affordable.

Do you recommend to go with an FHA 203K or a hard money loan. I am looking for a house that we can BRRR. As the 2 unit we have now there isn't much room for value. Only to finish the basement a bit more and the attic which are basically done.

Thanks,

I understand the down payment concern, but will the existing property appraise for enough money to satisfy equity requirements? Whether existing or new conventional, they will have equity and PMI requirements if not met. I am not sure you will be able to lower mortgage payments by refinancing after only being there a year. Unless you were able to increase value of the property significantly during that time. Using 203K FHA is generally better than hard money from a terms standpoint.

@Chace Fraser            @Will Fraser @Joe Splitrock I spoke with my lender today. He said i do not have enough equity for a refinance into a conventional loan.

However he mentioned that i qualify for an FHA Streamline refinance. Have you heard of this?

I would be switching from a 30 year mortgage to a 28 year old mortgage. My interest rate would drop from 3.75% to 3.375%.

Which means more money would be going towards my principal balance. I would also miss a mortgage payment and no closing cost or appraisal. Do you or anyone have experience doing this?

I am also going with the route of getting an FHA 203k or FHA under my girlfriends name.

Anyone's input would be appreciated.

Thanks,

Originally posted by @Gavin Joel arredondo :

@Chace Fraser            @Will Fraser @Joe Splitrock I spoke with my lender today. He said i do not have enough equity for a refinance into a conventional loan.

However he mentioned that i qualify for an FHA Streamline refinance. Have you heard of this?

I would be switching from a 30 year mortgage to a 28 year old mortgage. My interest rate would drop from 3.75% to 3.375%.

Which means more money would be going towards my principal balance. I would also miss a mortgage payment and no closing cost or appraisal. Do you or anyone have experience doing this?

I am also going with the route of getting an FHA 203k or FHA under my girlfriends name.

Anyone's input would be appreciated.

Thanks,

I would request a sample settlement statement to see what costs you are stuck paying. Is there "no closing cost" or "no out of pocket costs". To my knowledge where will be some closing costs and I think there is new upfront mortgage insurance. You will get some credit back on the original MIP, but not the full amount. You have to figure out if the .375% savings is worth the extra costs. You are saving about $375 per year per $100K financed. You may come out ahead over time, but it may take years.

The other question is why reduce to 28 years? If you push it back to 30 years, it will reduce payment further and free up more cash now. That will allow you to save up more to invest. If you want to pay it off early, you always can.

Hey @Gavin Joel arredondo , I just completed a Streamline Refinance and it was a pretty smooth process.  My lender didn’t mention anything about the 28 year timeline vs a 30 year, so the overall effect of my refi was to pull my rate from 4.875 to 3.375 . . . My mortgage balance jumped about $2,500, but it lowered my payments by $200/month so it was simply a number game.  That debt is still slayed in 30 years, so $200/month x 360 months saved = $72,000 saved through the refi!

I think your plan to get a second FHA loan through your GF is ideal! Go for a 4-plex IMO. . . . Mo Bigga Mo Betta, am I right?


Will

Originally posted by @Simon Obas :

@Chace Fraser great info here. I’m In the process of trying to figure out my strategy as well for my second home. Can you share your lender info with me?

Absolutely, I'll send you a PM

 

Originally posted by @Will Fraser :

Hey @Gavin Joel arredondo , I just completed a Streamline Refinance and it was a pretty smooth process.  My lender didn’t mention anything about the 28 year timeline vs a 30 year, so the overall effect of my refi was to pull my rate from 4.875 to 3.375 . . . My mortgage balance jumped about $2,500, but it lowered my payments by $200/month so it was simply a number game.  That debt is still slayed in 30 years, so $200/month x 360 months saved = $72,000 saved through the refi!

I think your plan to get a second FHA loan through your GF is ideal! Go for a 4-plex IMO. . . . Mo Bigga Mo Betta, am I right?

Will

 I have a friend who I helped purchase a duplex to house hack, @Sean Ade , who did the same refi. It sounded like it went well for him