Refinancing an FHA/203K loan to Conventional (Cash Out)

[John Havel]

I'm wondering how long it typically takes to refinance an FHA or 203K loan to a conventional or if its even possible to do that in a short timeframe such as within the first year of the FHA loan. I'm just getting started with my brother on looking for deals and the low money down and potential for improvement costs covered under the FHA loans would make it much more feasible to fund a deal for us. We have a sizeable chunk of money between us but because of inexperience would prefer to keep a nice cushion going into any deal at the moment.

My thought is to get in the door with an FHA or 203K loan on a distressed property which we could refinance under a conventional (cash out or non cash out) loan once the renovations are finished to get our money back out or at the very least eliminate the MIP on it with the additional equity built through the renovations. Sort of a BRRRR strategy using FHA loans to get going. doing something this way my understanding is that we would then be able to rent out the property without MIP and also free us and potentially our initial cash up to do another FHA loan on another deal going forward.

If anyone has any thoughts on this strategy and has any idea if you can even do a refinance that fast on an FHA loan it would be greatly appreciated.

[Paul Welden]

@John Havel

As @David M. mentioned, you need to have sufficient equity in your property to do a cashout refi. But if you are simply doing a refi to get out of the FHA MI, then you don't need 20% equity. You'll need to have made 6 payments on your mortgage before you can refi.

Doing a cashout refi, most lenders will go up to 80% LTV, which means that you may need/want more than 20% equity to do a cashout refi. And if you do a refi, you will have to select whether it will be an owner occupant loan or a non-occupant loan, which has higher rates/fees. So, if you intend/plan to rent it out after the refi, you need to do the non-occupant loan .... don't want to commit mortgage fraud.

Fannie Mae Conventional Renovation Loan is called the Homestyle. 

Freddie Mac Conventional Renovation Loan is called CHOICERenovation

Hope this helps!