Post Forbearance refinance goals. Rate and Term with a Hud-2nd?

[Oscar Miguel]

Hello all, I have been doing research for a bit, but I think this issue might be a little new for options to really open up.  I thought I'd reach out through these forums to see if anyone has any insight.  

I am 2 payments out of forbearance and in an FHA loan. MIP is very high (I live in San Diego) and while I've only been in my home (duplex, owner-occupied) for a little over a year, I have made some upgrades and the local appreciation might have me at around 85% LTV. My question or request for help is as follows:

Lenders right now do not know how to treat my HUD Partial Claim second lien (the amount that was not paid during forbearance), and so far the lenders I have spoken to would only be able to treat it as a cash-out refinance, instead of Rate and Term. Doing so will negate the benefit of the rate drop, but at least I'll have PMI that will disappear eventually. I would like to someday build an ADU on the property, but as a duplex, I cannot build the ADU and then expect to refinance.

So it's kind of a now or not for 10 years kind of thing.  By then I'll be futher along on my amortization schedule and probably wouldn't want to do it.

I would welcome any advice or referrals to any lenders that have experience in this or have more flexible options.

Thank you all for your help, be safe and keep up the great work everyone!