Advice on financing my house hack

[Addison Robertson]

I have a pending offer on my first investment property, a 4 bed 2 bath duplex in Indianapolis that I will house hack. FHA loan using 3.5% down payment with purchase price being $200k. Currently have $20k in liquid cash. I have narrowed it down to 2 lenders who have offered me around 3% with monies credited toward closing costs. With this being my first property, I plan on refinancing in 3-7 years to use that built up equity to purchase more investment properties. Would it be in my best interest to take a slightly higher interest rate in order to get the most credit toward closing costs due to my low amount of liquid cash? Also take into consideration that I plan to refinance in the medium term.

[Kevin Sobilo]

@Addison Robertson, In 3-7 years you will pay down very little on a fully amortized loan. So, unless your property appreciates on its own which you cannot control you may not be able to refinance out money to buy the next house. You will only be able to refinance out 80% of the value and if your property value stays the same you won't have any equity to take out with only 3.5% down on the initial purchase.

I would lock in the lowest rate possible! I would also consider using a convention loan instead of an FHA. With an FHA loan you will have mortgage insurance for the life of the loan With a conventional loan the mortgage insurance will drop off when you have 20% equity in the home. You can probably get a conventional loan with 5% down. So, not much more.

Save for the next house from the cash-flow you generate from renting. It may not be a lot but that is something you can control and if you really want to make it go faster consider renting by the room or even renting extra rooms in the unit you will life in. Sacrifice in the short term to make things happen!

One more reason not to think of refinancing in 3-7 years. Interest rates will likely be higher! Lock in today's LOW LOW LOW interest rates and ENJOY that benefit for 30 years. You'll never regret that.