You are in a very difficult predicament. You really should be asking your lender how to best approach this scenario. I understand you will need to have a minimum of 30% equity in a property in order to do a cash-out refi- (which is what you will be doing, in affect). Plan on a 90-day seasoning and plan to jump through hoops to accomplish that goal -- in today's uncertain lending environment. I would be intersted in knowing why the "seller" doesn't want an FHA Buyer -- does the property have issues? Suggestion: guarantee the seller that you will close the escrow on time, and put up a non-refundable deposit (1% ?) to prove it. You better be 100% certain you can get that FHA loan first, though....
I asked 2 of my favorite Loan Officers and here is what they told me:
The 1st step is to identify with the buyer what their goals are and motivation. It doesn't make any sense to me why a person would buy a home utilizing conventional financing and then refinance a month later with FHA? Seems odd. It would really be a waste of money paying closing costs 2 times on a home. If they buy it Conventional, they can get a 30 year fixed loan at a great rate and just keep that loan. Make sense? Why would they do that?
It is easy to refinance in cases where the borrower qualifies. Banks look at 3 key items when qualifying for a refinance.
1. Credit FHA 640 or higher score
2. Income DTI at 57% or lower back end
3. Equity Finance up to 97.75% + Upfront MI costs
Cosing costs are typically what I teach people are about 2% of Purchase price and then factor another 1 to 2% for prepaid items. Prepaid items would include 1st months mortgage payment, 1st years homeowners insurance, Property taxs & impounds if they are having impounds, (required on FHA)
$580,000 2% est closing costs $10,000 to $12,000
Prepaids 1 to 2% $5,800 to $10,000
2% is pretty high and IS NOT A COST, this is pre paids.
Let me know if you have any other questions. I would be happy to pre-approve them for you if you are writing the offer for them, Rates are incredible right now.
I will try to answer the question, although I'm not sure if I understand completely. In order to do a conventional loan, the buyer needs 20% down payment. If the buyer has the down payment, then why would they want to do an FHA loan? FHA loan comes with the additional cost of 2.25% mortgage insurance upfront, and an additional .55% mortgage insurance each month. Plus, the FHA loan is more involved, so the loan origination fee is going to be higher. Finally, the property has to be FHA approved in order to qualify for an FHA loan.
If one purchases and takes out a loan there are all of the standard costs. Then, to refinance, similar costs occur - title, escrow, appraisal, fees, etc. It sounds like double the costs.
Does this help?
the first if the seller doesnt want a fha loan, it is usually because the house wont pass a fha insoection/appraisal. They may have beenm through one with a prior buyer and it failed or they nknow f a defect. most sellers will do anything to sell their home, and seeing fha loans make up 90 or so percent of what buyers are using to buy today, they limit the amount of buyers that can make offers.
You need to ask point blank, if there has been any fha home insoections, are there any defects or problems they know of that wont pass a fha inspection.
As far as refinacning, you cant refinance any loan for 90 days after you purchase. You then need to ask your loan officer if they will be able to asist you in refinancing, most fha loans are for a purchase, not refinance and teh costs of a new loan may wipe out any savings you would get from fha.
good luck with working things out
The seller is actually a flipper, he buys houses flips them and re sells. them. He bought this house of $475K in feb and is asking $599k now.
He just refuses to listen to anyone with FHA loan. He has sold couple of properties before and acc to his agent he did not have a good experience with FHA loans.
I am already pre approved from Wells Fargo and when we sent the offer sent them every possible thing that could prove that we wont have any FHA loan problems, but he is still not convinced that is why thinking of looking out for conventional loan and then probably refinancing it to get cheaper interest rate.