Refinance out of my FHA loan or get a 2nd, conventional loan now?

Question

Hi BP community! So I've been researching REI for years and have been itching to get involved but I am still at the beginning of my investing journey. I bought my first home in Chicago in 2019 using an FHA loan, but it has served only as my primary residence for the past two years. Recently with my credit score being in a good place, interest rates remaining low, and equity building up in my property, I thought it would be a great time to refinance the FHA into a conventional loan to get some savings (approx $280/month) and finally look to get that first multifamily property using a new loan.

However, the issue is that I was told by my mortgage lender that refinancing would cause me to have to remain in my current property as a primary residence for another full year before I could apply for a new conventional loan with primary residence intentions. I would like to apply for the new loan as a primary residence in order to eligible for a much lower rate/down payment, rather than purchasing a building as an investment property. I'm now weighing the following two options: refinance out of the FHA now/wait a year to buy a new building or skip the refi and go straight for a multifamily building now. If I skip the refi, I'm told the new property would become my primary residence, making the FHA house an investment property and harder to refi later. If I refi I would get the savings now, but I would miss out on another whole year of investing and rates could potentially go back up. Just looking for any feedback if anyone has thoughts. Thank you!!

Zack Karp · Answer

@Tayo O. why can't you refinance as an investment property? The rates are still stupid low. Take advantage now before they go up later on. Then use FHA again for the next property. No brainer IMO. Feel free to reach out if you need any help.

Best of luck!

Tayo O. · Answer

@Jonathan Klemm I wasn't able to qualify for the investment property refi so I'll have to refi into a primary conventional & wait a year to use the FHA. I don't really have a price range yet so that's something I'll have to look into.

Jonathan Klemm · Answer

@Tayo O. - Sounds like you have your path forward!  Well once you do you have enough equity for the HELOC definitely hit up @Michael Barbari with First Midwest Bank, they have a great product for primary residences that allow up to 90% of LTV.

As far as where you are looking for the next deal - do you have a max price for the purchase?  That will really likely dictate neighborhoods you can search.  Luckily Chicago is great in that sense because you can find properties at all price points.

Tayo O. · Answer

@Jonathan Klemm thanks for your reply. Yes I like Zack's suggestion. I was thinking that doing the investment refi & new property FHA would result in a better overall gain than just refi'ing into the conventional now but it's good to hear you both confirm it. I'm going to see if I can get approved for the investment refi based on where my credit score is now. If I can't get approved I'm assuming my only option is to refi into the conventional for now? Also, there isn't enough equity yet to really do a HELOC.

As far as where I will be looking, I haven't dove too deep into a location yet but it will be Chicagoland (likely south suburbs, north, northwest suburbs). Do you have any suggestions for good neighborhoods/areas to focus on?

Jonathan Klemm · Answer

@Tayo O. - You should talk with @Zack Karp or @Michael Facchini they both are doing FHA loans on a regular basis and can properly advise you on being about to refi and do another FHA.

Tayo O. · Answer

@Victor So When you did the refi into a conventional I'm assuming you did the loan as an investment property? Because FHA would require owner occupation from my understanding.

Tayo O. · Answer

@John Warren I'm currently in Morgan Park. That's a good idea, I'll probably try to stay around the south side, southwest suburbs, or south suburbs. Thanks.

Victor So · Answer

@Tayo O.

Hm, weird. I was able to refi into a conventional from fha and then use another fha to buy my next multi-family right away.

John Warren · Answer

@Tayo O. I would recommend that you try to cluster your properties. As you grow, it is nice to have your buildings all in the same area. Which neighborhood are you currently in? Are you able to continue purchasing in the same area?

Tayo O. · Answer

@Zack Karp that makes sense. Middle score is currently 655 so I think it would be worth seeing if I could get approved for the investment refi. Thank you.

Refinance out of my FHA loan or get a 2nd, conventional loan now?

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