Cash out refinance Vs. Portfolio Loan Help?

[Lee Ribeiro]

Hi BP community! 

Have an interesting situation on my hands and I think I know which direction to take, but I'd love the opinions and thoughts of the community to help guide my novice self!

Situation:

I am buying a property from my father. The property is paid off in full and has no mortgage currently on it. Instead of doing a purchase transaction, what we did was add my name to the title via a quit claim deed, and we plan on doing a cash-out refinance to pay out my father for it. I estimate the property to be around $220K in value, and want to pay my father out about $160K for it.

Caveats:

• It is zoned as a single family residence, but there is technically 2 units (Front and Back. Maybe considered an in-law unit?) and one unit is currently rented out. I plan on living in the front unit and househacking the rear unit. Not sure how this will affect the appraisal process?
• I plan to get the new mortgage under my name, but keep my father on the title for the time being so there is no mess around me only being on the title for less than 6 months (We just processed the Quit Claim Deed last month, April 2018).

Question:

After talking to a couple different lenders and explaining my situation, I am between two thoughts.

1) Go with a traditional cash out refinance. Looking at a fixed 30year rate of about 4.5%-4.75%. and monthly payments of ~$900 without taxes and insurance. Closing costs near $5K

2) The bank my father uses for a lot of his properties (US Bank) is pushing me to do a Portfolio loan for this property since it will be a lot easier to accomplish without complications since they would own the loan and not have to jump through Fannie May/Freddie Mac hoops. Their offer is to do a 20 year fixed rate at just over a 5% Rate. The thing is, they wouldn't charge a closing cost and take care of all appraisal/title fees etc..

Ideally, my goal is to cash flow as much as I can monthly so Traditional Cash Out Refi seems like the better way to do that. But I fear that with the situation we are in, it may make more sense to go with the Portfolio Loan so that we don't run into road bumps around the Quit Claim deed transfer and zoning issues (SFR used technically as duplex). I'd love to hear any thoughts or advice as I make a decision on this process.

Thanks to anyone who takes the time to read through!