First Purchase Conventional advice on refi timing?

Question

I purchased my first deal and am looking for advice on where to go in the future. I purchased a foreclosed duplex for $55,000, after update and remodel I believe the property to be valued at 115k.

I would really like to acquire another property asap, stipulations to this current deal are I have to live in it and hold it for 1 year. Which is no issue. I am looking for advice on what an experienced investor would advise.

I did a 30 year conventional fixed at 5% with 5% down with the intent to refi into a 15-year asap, how soon would/should I be looking to do this? I can have 20% equity in the property within the first 6 months if it would benefit me to do so, however I also think the property will appraise well above 70-80k after updated which will take 3-4 months.

1. Does paying down the note provide an advantage opposed to waiting out for the refi?

2. How long should I be looking at before going to the bank for a refi?

3. On my next loan can I apply for an fha since I am already in a conventional, assuming I would move into that property once the year is up on the one I will be living in?

4. I would really like to make a move in the next 6 months before interest rates hike again, am I better to wait a year given the stipulations of the current purchase?

Any other advice or questions are welcome, thanks in advance.

Jim Blackburn · Answer

1. Does paying down the note provide an advantage opposed to waiting out for the refi? Cash is king. Keep the long term note and low cost of capital. Keep your cash to purchase more property or invest. 2. How long should I be looking at before going to the bank for a refi? 6 months. 3. On my next loan can I apply for an fha since I am already in a conventional, assuming I would move into that property once the year is up on the one I will be living in? Sure you could with a good letter of explanation. 4. I would really like to make a move in the next 6 months before interest rates hike again, am I better to wait a year given the stipulations of the current purchase? With a good LOX, you co do it in 6 months.

Stephanie P. · Answer

@Drake EspenlaubDrake. There is no guarantee that Janet Yellen will wait 6 months. Get the lowest rate you can if you're going to refinance and do it as soon as you can. Rates have no where to go but up and the Fed has signaled at least 3 rate increases for this year. If the economy continues to grow, as expected given a more favorable regulatory environment, the increases will come to fruition.Find a lender with no overlays and you can refinance immediately if you just use the purchase price.I would purchase a 4 unit using FHA as soon as my 1 year is up and my refinance is in place, if you can get an underwriter to believe you're going to live in it.

John Leavelle · Answer

Howdy @Drake EspenlaubCongratulations on your first of many.Let me try to address your issues and questions one at a time.First, what are you basing your $115K ARV on? Recently sold comps? I'm confused. You also said it should appraise 70 - 80K after updating. Which is it? 70 - 80 or 115? This is the most critical part of the whole process.What is your Rehab estimate? You must consider that in the appraisal process.Why do you want to Refinance into a 15 year Mortgage? This is a Buy and Hold rental property correct? You want to stretch your mortgage out as long as possible to make your Monthly mortgage payment as small as possible. Smaller means better Cash Flow. Cash Flow IS the name of the game! Recommend you stick with 30 years. You will have to get shorter terms soon enough.Answers to your questions.1. In order to refinance your loan you will need to have a minimum of 25% equity in the property. The bank will be providing a loan that is 70 - 80% LTV based on a current appraisal. Typically it will be 75%. Hence you need 25% equity. You can achieve the increased equity three ways. First, and in your case the most important, would be through forced appreciation. Rehabbing the property to Market standards. Second, your renters are paying down the mortgage for you. And last you can make extra payments to "pay down" the mortgage.Using your ARV of $115K the Refinance loan amount would be approximately $86,250. If the appraisal comes in at $80K, then, the refi would only be $60,000. That does not allow much room for Rehab costs.2. The sooner you start looking for a bank to do the refinancing the better. Find out their requirements so you can work to meeting them.3. Yes. You can apply for a new FHA loan as soon as you meet the one year residency requirement. Or after you Refinance out of the current FHA loan.4. You must meet the one year requirement unless you are upgrading to a better/more expensive property. Check FHA regulations to make sure.How is your Cash Flow now? Hope this helps.