What happens to an FHA loan after a year and want a new one?

[Jonathan Escobar]

I'm planning on getting an FHA loan to house hack but I don't know what happens after a year. Do you get the same interest rates and payments after a year and you apply for a new FHA loan? Or do you have to refinance the house and pay 20% down on the first house in order to get a new FHA loan on the second house?

[Christian Allen]

To be able to recycle the FHA loan every year you need to BRRRR each of the properties you buy to gain the 20-25% equity. In the current market this likely means the worst property in the best area you can find. I've done it a few times but it's only been from doing major rehab of multifamily properties that cashflow well. The cashflow part is just as important as the equity gain because when you go to qualify for a second property, they will use the rent numbers from your first.

If you buy a previously rehabbed property in the current market, it is unlikely you will be able to ride the market to the 20-25% you need to refinance into a conventional loan. When you refinance it is important to get a loan product that is not tied to you occupying the property or you may be stuck there for an additional year depending on the terms of the loan.  This "investor" loan type often requires 25% equity and brings a higher interest rate.