BRRRR and House hacking

[Jacob Joseph]

So I just had a crazy thought and I wanted to know if you could do a BRRRR and when you go to refinance use an FHA loan at 3.5% , instead of a normal conventional loan at 20%?

Any guidance from lenders or experienced investors would be greatly appreciated!

Thanks!

[Jason Wray]

Jacob,

Typically you buy a home using FHA for example because it offers less down. Then you renovate the property and after renovation on or after the 6 month of ownership. You refinance and generally take out some cash to move to the next purchase. You could also not take out any cash and convert that FHA loan into a conventional loan to remove the FHA MIP monthly mortgage insurance. That could help increase cash flow per month.

FHA now requires you own the property for 12 months before you can take out any cash. Lets say you renovated the home and needed to use FHA again due to credit score or higher DTI Debt to income. Yes in that situation you could use FHA again but in most cases FHA is a program you want to get away from in order to convert to a rental.

The reason for that is you want to always refinance your primary home to get the better rate before turning it into a rental. If you refinance after you move out the rate will always be higher because its considered NOO - Non-Owner Occupied higher risk, higher rate. Also when you refinance a primary you can go 80% cash out and on an investment your maxed out at 75% LTV.

If I am not getting your question just explain in detail but in most cases you buy using FHA first for the lesser money down.