Lending rules change, re-fi with cash out of FHA or get SFH?

[Yulia J.]

Hi guys, need your advice here. We are house-hacking a 3-flat, got it on FHA. We have lived in it for some time, and now want to move on, rent it out completely and get another property. We've looked at purchasing and house-hacking another 2-4 unit in a better school area for our kids, using a conventional loan with 5% down on a duplex or 10% down on a 3-4 unit. Now we are told the rules by Freddie Mac and Fannie Mae have changed, and we have to put down 20% with a conventional loan, on a 2-4 unit, even owner-occupied. We don't have quite enough cash to put down a 20% on a 2-4 flat, so we are now thinking how to adjust our strategy.

Option 1, to pay more cash on our triplex up to 20% equity and refi out of FHA. Then we could use FHA again on the next 2-4 unit and move into it. We would probably need to borrow another 10K or so, maybe from a relative for the next FHA downpayment. Advantage: we can do another FHA with 3.5% down and get more units. Disadvantage: it's not cool just to use up all our cash, need to borrow more from a relative.

Option 2, just get a SFH next and move into it, this can still be done using a conventional loan with 5% down. Of course, interest rate would be a bit higher, and there will be PMI. Advantage: don't need to borrow from a relative, will still have some 10-15K left over for whatever, easier to find a SFH with add-value potential compared to a 2-4 unit. Disadvantage: getting a SFH instead of more units under one roof, as we will live in it we will have to do mortgage payments without other units' support as in a 2-4 unit property.

Option 3: wait till equity in out triplex will grow closer to 20% and then refi. Disavantage: we don't know what the market is going to do, and waiting is not cool.

What would you do? Maybe there is something obvious I am missing. Just got the news about changes yesterday and have to scrap our original plan.