How soon can I get in a new FHA if I refi out the one I have now

Question

Hello Fellow REI Enthusiasts, I have a simple question for you. If I refi my current FHA residential town house into a conventional loan, how soon can I get into a new FHA for residence? My goal is to keep my 3bd - 2.5baths town house and rent it out, and buy a new (a little bigger) SFH with FHA to live in. What does the rule book says? Is it right away, meaning after closing the refi I can start shopping or there is a time to wait? I live in ATL GA.. Thank you.

Jaren Woeppel · Answer

@Brian CallanThank you. I was more referring to taking the equity out in cash with the refinance, not opening a HELOC. However, if I do not plan on using the entire equity position I created, it may not be a bad idea to use a HELOC instead. I guess it is all relative and depend on my credit score and the debit to equity ratio I will have.

Brian Callan · Answer

@Jaren Woeppelit depends on your overall credit health really. Im no expert on "how much" it affects your credit. I would recommend speaking with a lender. Once I made a years worth of payments on my new mortgage, my credit shot back up significantly. I was worried at the beginning when it dropped and the lender ensured me it would return after I showed I could make consistent payments. In regards to the equity line, it acts as a secured credit card. By using the home equity as a security, the higher the balance you carry, the more it will affect your score. Obviously if you're using 100% of the credit line, it will negatively affect the score.

Brian Callan · Answer

Maurice,You are eligible for another FHA loan once you have refinanced to a conventional loan. As far as a time line after refinancing, it all depends on when the refinance hits your credit history and lenders can see that you no longer hold another FHA loan. Keep in mind you'll be paying PMI on the new FHA loan. Also keep in mind, your credit will most likely take a big hit after purchasing the second home AND recently refinancing the FHA home. I went through this with my first rental. Instead of refinancing the FHA mortgage, we kept the FHA loan and allowed the renter to pay rent that covered the full mortgage and PMI cost. We used a conventional loan to purchase the new home. I hope this helps!Thanks,Brian

Sean Grapevine · Answer

Maurice, I simply mean that your credit will only be pulled once.

Maurice Mugabo · Answer

@Sean GrapevineThank you for your input. So you mean those 2 loans can be put in front of one lender at the same time, that actually would be good coz you wouldn't have to wait for the first FHA to clear out on the credit history in order to be able to get a new home. But one thing though, are you saying the credit wont be hit if you do both loans at the same time, or you mean the credit will be hit anyway but since I would have both of my loans done I wouldn't be worrying about anything (since I got what I wanted:).For the lender, I talked to one on the phone and got a quote, but I haven't started the process coz I need to dig deeper for what is possible and also check that lender's services out. Just shopping I mean. There are many things to be lined up for me, first is, am checking my Home owner association, if I remember correctly the law, the community must be limiting the houses that are rented, need to check on this first.Thank you all

Maurice Mugabo · Answer

@Brian CallanThank you for your explanation, that helps. That might actually be a good idea coz the PMI I have currently should be taken off next year 2017 anyway, so no worries about that. But the reason I wanted a new FHA for a residence is to be able to put less down, alternative to this I guess would be to keep the FHA and go out to look for 5% down conventional for a new residence if I can find it. Thanks

Sean Grapevine · Answer

Jaren,I'm a broker here in Roswell. We do this all the time for folks. Let me know if you have any questions! If I were you I would work with one lender (which, I'm not going to lie, I would love to be that lender) and take both loans through the same lender at the same time. If you already have a lender, I would be thrilled to answer any questions you have!Edited to add that you won't have to worry about the credit hit on your current place if you do both loans at once through the same lender.Best,Sean Grapevine

Jaren Woeppel · Answer

Brian Callan thank you for the thoughtful advice. I have been planning on using one of Brandon's techniques to buy using a 203k and fixing the house up and add equity. Then a year later refinance out of the FHA and use the equity for another house purchase. Do you think doing this strategy will impact my credit score a lot?