FHA denied the mortgage from 2-family Multi to 3-family Multi

[Peace Lily]

Dear BP Members,

I have a question and hope to get your advice. I lived in a 2-family house for one year on conventional financing as my primary residence. I recently just moved out and rented out the whole house. The clause with my existing mortgage bank is that I can move out after one year of occupancy which I had fulfill. I saw a 3-family house and planned to buy and move in as my primary residence and applied for FHA or Fannie Mae financing but I tried with a few mortgage companies and all got rejected so far. FHA said that I cannot have both multi family on low interest rate and they said I was trying to use 3-family as an investment property even though I would be living there. The mortgage broker recommended me to refinance my existing 2-family house (not to take out equity) so that it becomes my investment property but I asked my existing mortgage bank and they said that I don't have to refinance it even though I am using it as an investment property. They don't mind. I am puzzled. I have heard other investors moving from one multi family to another multi family using FHA financing. Is that correct or am I missing something? What other options would I have to qualify low down payment? Many thanks for your advice in advance! - Ling

[Curt Smith]

@Kevin S. @Peace Lily

I re-contacted my favorite bank loan officer AGAIN re FHA rules. Kevin you are right. But he offered a very nearly identical path forward that is actually better:

- buy first primary with FHA

- in 12 mo ++ after saving up another 5% down, buy next primary with conventional 95% LTV.

- you can repeat this as often as you can save up the down, buy another primary with conventional 95%...

- I suppose its best to wait 12mo+ so as to season the lease on the prior resendense converted to rental. At 12mo+ that lease income will add to your income to help (not hurt) your DTI.

in time you can REFI out the FHA once equity has built ideally with some cash out REFI, but the REFI will be conventional investment at 80% LTV.

Its said that a 95% conventional is really a better product for those who qualify then FHA, which today the Mortgage insurance never drops off, where in conventional it will drop off when at 80% LTV.