How long to refi duplex from PM to FHA Owner Occupied?

Question

Hello All,

I have a verbally accepted offer on a duplex that I am planning on owner occupying for at least a few years (while I rent out my current house)  and then renting out fully until retirement in 15 years or so.

The seller would like to do a quick closing, and I would like to do an FHA O/O or 5% down conventional loan to lock in rates for the long term. I do have a private lender that I could borrow from for anywhere from a few month to a couple of years in the 6% or less range.

Is there a disadvantage to doing this 'short term' private loan and then converting to FHA or conventional financing in the near future?

I am also working on the purchase of 10 more units with a commercial loan with 2 partners in an LLC. Would there be an advantage to getting this personal loan for the duplex done BEFORE getting to far into the commercial loan as far as DTI ratios etc?

Thanks, Dan Dietz

Upen Patel · Answer

@Daniel Dietz Looks like @Albert Bui has answered your questions.

Good luck.

Albert Bui · Answer

Yes, and that is a good reason sufficient I believe about kids and big house.

With your super cheap private money source it would be better to use private money if you can appraise much higher than your purchase price after 2-6 months later so you can refinance out the private money with no monthly MI and or with a better 30 year fixed rate product then take the private money and go out and do it again else where. Its also good to use private especially if they can wire the money out within 3-7 business days which allows you to capture deals. I do this but unfortunately my source is not 5% interest with no points or prepays, more like 12% with 2pts, envious.

Most private money sources are much higher so yours can make sense since its pricing is almost on PAR with conventional money (non owner) but primary residence money conventional is still alot cheaper, in the mid 3's.

Daniel Dietz · Answer

@Albert Bui

Thanks for the vary detailed response.

By "LOE" do you mean explaining "why" I would want to 'go backwards' to living in a duplex when I currently live in a SFH?

My thinking is driven a lot by the fact that both my kids got married and moved out in the last year so a SFH that is a 4 bedroom 2 bath is too big for one guy :-) And that I can rent my current house for $1400 while my PITI is only about $900. I also want to take advantage of make some of my capital work harder in the new duplex investment by using the low down payment. It also happens to be in a great neighbor hood across the street from where one of my kids live and a block from where the other one works.

It look like the PITI would be about $1025 and the other half is rented out for $775, so it seems like I could be living in 'my half' for about $300 month or so.

My private money guy would likely be about 5% annual rate and no point, I pay for any needed papers (yes I have it good :-) ) so that part would not bother me at all.  Would I still be able to use either one of the Freddie, Fannie (I believe I fall within the range as far as income goes) of FHA low down porgrams if I ALREADY purchase with Private Money and was doing a refinance?

Thanks again, Dan Dietz

Albert Bui · Answer

Yes its better to get your property first if the income is cash flow positive to help your overall commercial scenario it depends.

conventional 5% down doesnt exist on a duplex unless you meet the niche guidelines for niche fannie freddie guidelines, one unit SFR condo sure but this is a duplex. There is a program for it, Fannie Mae HOme ready or Freddie home advantage but you need to meet median income limits in your county/area and own no other properties at the time of purchase so thats pretty much out the window (you own a SFR).

FHA works but its 3.5% down and you have an issue you're going from SFR to duplex so you'll have to have a very good letter of explanation (LOE) or reason that would convince the underwriter to believe that.

Should you use private money first then refinance? Pro's will be that you'll have established your primary residency upon purchase with the private money so occupancy will be questioned less especially if you have 2-3 months of utilities bills the con's will be that you'll probably have had higher costs of acquisition/purchase since private money might cost points or higher rates and you're paying transaction costs twice (once for purch, once for refi).

Daniel Dietz · Answer

Hi,

@Albert Bui or @Upen Patel is this something in your fields of expertise?

I am having a bit of a hard time finding lenders in my immediate area that are "FHA friendly' if they do them at all. If either of you can do both personal and 1-4 unit rental property loans in WI please shoot me a PM so we can start discussing things.

Thanks, Dan Dietz

Daniel Dietz · Answer

Bump please..........