Rental Property Investor · Greenville, SC · Member since 2019 · 39 posts · 5 votes
Hello, I am looking to purchase an 4plex and use a fha 203k loan to renovate. After the renovation I would like to do a cash out refi into an 80/20 conventional. After this is done can I apply for another fha loan and repeat. Question: since I have refinanced out of the fha loan, do I still have to owner occupy for atleast 1 year? Question 2: can I legally obtain another fha loan since I would currently not have one after the cash out refi.
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
6y
@Kalib Williams in theory, yes you can do this, but not at 80%.
For the exit strategy from the 203K loan on a 4-unit, you have 2 options using Conventional financing:
1. Finance as a primary residence, 75% max LTV as a rate/term refi or as a cash out refi, and with the new loan you would be stating you intend to occupy for 1 year starting with this new mortgage.
2. Finance as an investment property, 75% max LTV as a rate/term refi or 70% max LTV as a cash out refi, slightly higher rates than the primary loan, and no requirement to occupy.
Once you pay off the FHA loan with the Conventional refi, you now have your FHA eligibility back to rinse and repeat, there is no waiting period to use FHA again.
But the challenge is having 25% or 30% equity after the 203K. If you can pull that off, then this is a great strategy. Make sure you know ALL your numbers before starting so you don't get stuck.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
Interesting... The FHA product is designed for homeowners (although you can leverage it for investing). I do know you can't get another FHA loan within 90 days of a sale of a prior FHA loan (ie. no flipping). So I imagine there is another way they would slow your ability to get another FHA loan.
You can refi into a conventional occupied (you live there and sign an affidavit as such) or investment loan (you don't live there and sign and affidavit).
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
6y
@Kalib Williams in theory, yes you can do this, but not at 80%.
For the exit strategy from the 203K loan on a 4-unit, you have 2 options using Conventional financing:
1. Finance as a primary residence, 75% max LTV as a rate/term refi or as a cash out refi, and with the new loan you would be stating you intend to occupy for 1 year starting with this new mortgage.
2. Finance as an investment property, 75% max LTV as a rate/term refi or 70% max LTV as a cash out refi, slightly higher rates than the primary loan, and no requirement to occupy.
Once you pay off the FHA loan with the Conventional refi, you now have your FHA eligibility back to rinse and repeat, there is no waiting period to use FHA again.
But the challenge is having 25% or 30% equity after the 203K. If you can pull that off, then this is a great strategy. Make sure you know ALL your numbers before starting so you don't get stuck.
Rental Property Investor · Greenville, SC · Member since 2019 · 39 posts · 5 votes
6y
@Zack Karp ok just so I understand. After the 203k if I can build 30% equity I can cash out refinance and have the new loan be a conventional without an owner occupancy contingency and go get another fha loan. Since I wouldn’t have one at the time. Am I understanding correct.
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
6y
@Kalib Williams bingo, but I don't think you understand the cash out refi part. A cash out refi is when you get cash back in addition to paying off any mortgages/liens. If you are doing a 203K, chances are that your loan is going to be very close to the ARV. How do you plan on creating all that equity? And you likely only need to do a rate/term refi, which is 75% LTV. Unless your 203K loan is substantially less than the ARV (less than 70%, that's the only way there is cash out to even take), which I rarely ever see.