cash out refi

[jaf4776]

We have an FHA mortgage.  30 years @ 4.25%.  We bought the house from family who just wanted out and we were able to purchase the home for $325K.  The house was appraised at $400K.  At this time we owe $319K.  We want to do some renovations and possibly get out of the FHA and go conventional (if this is an option).  If we have to stick with FHA for now, that is fine too.  It is my understanding that we can’t touch this FHA loan for at least 6 months.  Is this true?  Is a cash out refinance possible?  What are our options?  We will probably need about $60k to $80K for the renovations.

[GRate]

Yes, you will have to wait 6 months to pull cash-out from the equity. 85% LTV max

[ShanetheMortgageMan]

What was the reason you got an FHA mortgage instead of conventional to purchase the home?  With so much equity in the home and buying from family, there may have been a better way to structure it than with FHA.

If you don't mind another FHA loan, you could do an FHA 203(k) rehab loan which you could get up to 97.75% of the home's "as completed/after rehab" appraised value to use for renovations.  You don't just get the cash and use it how you please, there is an approval process for the improvements & your contractor's need to be reviewed and approved by the lender.  http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou has details on how it works.  After you do the improvements, you could refinance into conventional at that time.

Alternatively you could take out a 2nd mortgage to do the improvements.  Many banks out there are offering 2nd mortgages to 90% of your home's value (a small handful will even go to 95%, depending on the market you are in).  2nd mortgage guidelines are unique to each lender, some will require you own the home for a specific amount of time (6 or 12 months) before a value higher than the purchase price can be used and some will be OK using the new value right away.

[jaf4776]

We went the FHA route because it allowed for a lower down payment and less than stellar credit at the time.  we are now approaching the 700 mark for our fico scores so i dont think that will be an issue anymore.

[ShanetheMortgageMan]

If the family you bought from was willing to give you a gift, then you could have received a "gift of equity" of the amount between the purchase price & loan amount...  i.e. you could've bought the home for $400k, get a $80k gift of equity, obtained a $320k loan amount (so no down payment out of your own pocket), and would've had 80% LTV.  Wouldn't have helped you with your refinance options at this point, but you wouldn't be paying FHA's upfront & annual MI.  It's in the past so nothing you can do about it now, but since you have the 20% equity now I'd consider refinancing it into conventional and then look to take out a 2nd mortgage for the renovations you are planning on doing.