Rental Property Investor · Tulsa, OK · Member since 2017 · 8 posts · 0 votes
My fiancee and I are looking to buy our first property, a duplex, and will house-hack it. We are buying with an FHA loan, so we'll have PMI included.
She only wants to live there for a maximum of 3 years, but since we're buying it as a buy-and-hold rental, our equity will only grow so fast. I think by only paying the mortgage, it would be year 7 before we built 20% equity. I calculated that if we could pay $300 on top of the mortgage each month, we could have enough equity built up by year 2-3 to refinance out of the FHA loan to a conventional loan.
Key Factors... 30 year mortgage, 4.25% interest rate
I'm still thinking about getting a 15yr fixed rate, payment would just be higher, but mandatory as well
So, I have a couple questions.
1. Is there an easier way to refinance from an FHA loan?
2. What are some of the pros and cons of throwing all that extra moolah on top of the mortgage payment?
I would not do a 15 year mortgage. It is much better to just pay a 30yr down faster and maintain the flexibility of a lower payment. For your first question, would you have to refinance? Or can you just get the PMI removed once you hit the threshold? Refinancing will be less than ideal because it costs several thousand dollars and rates will likely be higher then. For your second question the pro is that you can eliminate your PMI, will have equity built up, and will have force saved money in a manner that you cannot easily blow on whimsical purchases. The cons are that you will have force saved money in a manner that you cannot easily access to increase your net worth and income. And that money will likely underperform other uses you could find for it.
@Edward B. The main reason we will be looking to refinance is to utilize an FHA loan again on our next property, and I know you can't have more than one FHA loan at a time. If we are able, I'd love to use a 5% conventional loan on next property (Owner-occ), since conventional MI can be less expensive than FHA PMI. In that case, I'd send letter to remove FHA PMI on original property, and do 5% conventional on next property.