FHA Refinance Question (CA)

8 Replies

Hey BP -

I'm new to investing and can't quite grasp when a good time to refinance is, so bear with me..

I purchased my first and only property 2 years ago with an FHA loan and have a question about refinancing.

Details:

Purchase Price: $256,000

Financed: $246,489

Interest rate: 3.25%

Term: 30yrs

Current balance: $233,138

*Zillow estimate: $297,000 - $300,000

Based on the details listed above, would it make sense to refinance with today's interest rates or would I have to find a lower interest rate? What are the advantages and/or disadvantages based on my circumstance?

My intention would be to either find another investment property (likely out of state) or possibly use the cash to finance a property in Germany, where I may be moving with my fiancé (still researching investments/laws/regulations in Germany).

Any advice is much appreciated.

Regards,

Kyle

Originally posted by @Kyle Mendez :

Hey BP -

I'm new to investing and can't quite grasp when a good time to refinance is, so bear with me..

I purchased my first and only property 2 years ago with an FHA loan and have a question about refinancing.

Details:

Purchase Price: $256,000

Financed: $246,489

Interest rate: 3.25%

Term: 30yrs

Current balance: $233,138

*Zillow estimate: $297,000 - $300,000

Based on the details listed above, would it make sense to refinance with today's interest rates or would I have to find a lower interest rate? What are the advantages and/or disadvantages based on my circumstance?

My intention would be to either find another investment property (likely out of state) or possibly use the cash to finance a property in Germany, where I may be moving with my fiancé (still researching investments/laws/regulations in Germany).

Any advice is much appreciated.

Regards,

Kyle

FHA's mortgage insurance will have been at 0.85% for that scenario two years ago, if memory serves correctly. And it's mortgage insurance that never drops off.

So your real interest rate isn't 3.25%, it's 3.25% + 0.85% = 4.1%. Historically, you did that math and it always made sense to refinance. 

Today, however, 4.1% is a dead sexy interest rate and it wouldn't make sense if that were your sole motivation. 

What is the value of the home today, who lives in the home, and what is the unit count? That'll let us know if you have enough equity to do a cash out refinance. 

@Chris Mason ,

Thanks for the information regarding the actual interest rate. 

I agree that 4.1% is a great interest rate!

The value today is approximately $285k - $300k (based on a quick reference of the comps in the complex via Zillow and Redfin) and is currently being rented out. The unit count is approximately 400 units.

My sole motivation would be to fund another property or lower the mortgage to be profitable. I'm currently coming out of pocket $151/mo - The HOA is $337.

Originally posted by @Kyle Mendez :

@Chris Mason,

Thanks for the information regarding the actual interest rate. 

I agree that 4.1% is a great interest rate!

The value today is approximately $285k - $300k (based on a quick reference of the comps in the complex via Zillow and Redfin) and is currently being rented out. The unit count is approximately 400 units.

My sole motivation would be to fund another property or lower the mortgage to be profitable. I'm currently coming out of pocket $151/mo - The HOA is $337.

 Not enough equity to pull anything meaningful out, so I'd just sit where you're at. 

@Chris Mason  

What equation or information did you use to determine that? Are you deducting the current balance from the current estimate and accounting for transaction fees + capital gains?

I just want to understand so that I can determine this by myself at a future date.

Thanks again for the help!

You can't get a better fixed rate, no sense in a refi that gives you a higher payment. You might be better off to sell and quit feeding the alligator every month. 

Originally posted by @Kyle Mendez :

@Chris Mason 

What equation or information did you use to determine that? Are you deducting the current balance from the current estimate and accounting for transaction fees + capital gains?

I just want to understand so that I can determine this by myself at a future date.

Thanks again for the help!

SFR owner occ, can go to 80% LTV without getting into crummy financing.

Value * 80%, and compare that to amount currently owed.

A maximum of $7k isn't worth the hassle and losing your current rate. 

Originally posted by @Lee Bell :

You can't get a better fixed rate, no sense in a refi that gives you a higher payment. You might be better off to sell and quit feeding the alligator every month. 

 I considered this too.

@Chris Mason I think I'll just hang in there and build up some equity for now. Thanks for the insight and help!