Refinancing an FHA - SUGGESTIONS REQUESTED!

[Cody Richard]

Hey everyone! My wife and I bought our first house in April 2019, which is what got us into real estate investing. We used an FHA loan to buy that house and I wanted to get a better understanding of our options for re-financing an FHA loan to use it again (this time to buy a small multi-family property). For some context, here's a quick overview of the situation:

• Bought the house in April 2019 for $245,000
• Me and my wife are both on the loan & title
• Looking to buy a new house in June/July 2020
• Loan balance will be between $230,000 and $235,000 in June/July 2020
• Zestimate on the property is $258,000

Based on the information, I have some questions about how we can proceed:

• If I remove myself from the loan & title, would I be eligible to use an FHA loan to buy another house?
• If we decided to refinance our loan to a conventional mortgage, I assume we would have to pay about 30k to the bank as part of the process to increase our equity in the property to 20%. Is this accurate?
• Are there any other options for proceeding that would allow us to purchase a new house in June/July?

Any advice/help is appreciated!

[Andrew Postell]

@Cody Richard thanks for posting.  You asked a lot of great questions here and I am glad you are doing this well BEFORE you start trying for this.  There's a couple of questions you didn't ask too and I'll address those too. 

Removing yourself from the loan would mean you are refinancing the loan. So the real question here is "Can you refinance the loan"? If we assume this is a single family home (if it is NOT please let me know as it will change the advice a lot) then you just need 5% equity to refinance. So you could refinance this loan and not have a home with an FHA loan. But does that help you.

Do you need the "rental income" from the property you are vacating to help you qualify for the new home? - If the answer here is "YES" then FHA will require two things from you:

1. You must move 100 miles away or greater
2. You either must have rental income FROM the property you are vacating...OR...have 25% equity in the property.  And yes, they will require an appraisal to verify.

If you do not have BOTH of those, then FHA will not permit you to use rental income from your vacating property to help you qualify for your new loan. UGGGG!!

Now, if you don't need the rental income, then it doesn't matter.

I would also say here that if you are moving more than 100 miles away that you are allowed to have a 2nd FHA loan anyway so refinancing the vacating property isn't even necessary.

The really important piece of the puzzle is that we need you to be prequalified in order to know if you need the rental income or not.  That will tell us what we need to know.

This probably isn't the information you were hoping for....but it's the right information you need to know.  Feel free to ask anything additional that you may need.  Thanks!