Refi on first home into investment loan...affect future HELOC?

3 Replies

I recently (about a year and a half) bought a 4 family home with my cousin through a 203k FHA loan. We completely rehabbed all the apartments and rented 3 of the units while living in one. Now we came to the point in which we want to refinance to get rid of the pmi and we are thinking of getting a HELOC on the property around November or so. My refi loan officer suggested to do the refinance as an investment loan instead of conventional in case either my cousin or I want to buy our own individual properties before a year from the moment of refinance (claiming that if we do a conventional refinance we will not be approved for an FHA loan on our own individual properties due to the fact that we are supposed to live in the house we refinanced together). My concern with going with a investment refinance loan is that we will have trouble with the HELOC in the future. Also dont know how much they would really deny our FHA if let's say we tried to get our own houses one month after the refinance due to not being able to live in the same apartment anymore.

Thanks so much for any help/input ahead of time. We are new to the real state game so any guidance is much appreciated.

I wouldn't let myself get pushed into a commercial loan, @Jonathan Amedrano . What matters is intent. You're intending to stay in your fourplex after refi. If that changes 6 months down the road, then it changes.

The HELOC is a non-issue to me. Do a full 80% LTV refi. That's going to maximize the equity you can pull out of the property. If in the future you build more equity, there are lenders that offer HELOCs on investment properties.

Side note: talk with some other lenders. I'm not too impressed with the guidance you're getting from that loan officer. That person is probably pushing you into a more expensive loan because it benefits them.

I agree with the advice above. Generally there is a path of mortgage sequencing that helps you get to the next property, and then the next after that.

Low down payment mortgages, such as the FHA or VA. Generally one use at a time, with exceptions.

Then the first "easy" 1 to 4 conventional mortgage slots have easier financing, lower interest, lower down payment requirements, and lower reserve requirements.

Next are the harder 5-10 mortgage slots.  Continuing to get more difficult to qualify due to debt to income ratios and the about needed to hold in reserves.  Once you are at 10, you are done with conventional.  Husband can get 10 and wife can get 10, for those who have income and reserves.

Then come the non-qm lenders that have rates and terms adjacent to the conventional mortgages. 

OR commercial or portfolio lenders. With these, the properties qualify on their own debt service coverage ratio, rather than the owner's DTI. Often these are closed in an LLC, and insurance is expensive, appraisal costs are higher. But you can get into properties without having good DTI or reserves...not to say you don't need them, by the way. Lenders still want to see liquid reserves, to show you can make 6 months of payments (typically).

That's one potential path ahead of you.  Many find this single family path to be a lot of work for a little bit of cash flow, and start aiming toward multifamily.  So that's another path.  Or snowball the first five or so to get them free and clear.  Or something else that you discover on your own journey toward financial freedom.  :D