Realtor · Kansas City, MO · Member since 2019 · 108 posts · 52 votes
3y
A lot of the pros and cons will be region specific! FHA has a lot of pros however, if your market isn't accepting FHA buyers at this time then that would likely not be a great option! I would reach out to an investor friendly real estate agent in your region and take it from there.
Realtor · Kansas City, MO · Member since 2019 · 108 posts · 52 votes
3y
A lot of the pros and cons will be region specific! FHA has a lot of pros however, if your market isn't accepting FHA buyers at this time then that would likely not be a great option! I would reach out to an investor friendly real estate agent in your region and take it from there.
Real Estate Agent · Des Moines, IA · Member since 2021 · 15 posts · 10 votes
3y
If you are looking to house hack (which I highly suggest doing so as it's the BEST way to get started in investing!), you can totally use conventional and FHA financing on properties with under 5 units. They bonus to FHA right now that I'm seeing as a realtor is that the rates have been consistently a little lower than conventional, which isn't typically the case. FHA has a little stricter requirements in the sense that the appraisal has more of an inspection vibe to it than conventional. With conventional, you can put as little as 5% down. With FHA you can put as little as 3.5% down. Just kind of depends on your personal financial situation and how much you are ready to put as your down payment.
Like others stated above, if you are not planning on living in one of the units or bedrooms and truly house hacking, then this financing isn't an option for you. You will have to go the other routes listed above OR go conventional under 5 units putting 20-25%+ down or go commercial if 5+ units.
So which one is better? Just depends on your goals, situation, what you intend to use the property for, what the current rates are, etc. In 2020 and 2021 I had a lot of buyer clients switch from their original plan of going FHA to putting minimal down and doing conventional because they felt like they kept losing out in multiple offers with the FHA loan, since like I said above the appraisal can be tricky. HOWEVER, most of the country isn't in that market environment right now so that may not be something to consider. I'm seeing multiple offers in the midwest markets I serve right now if a house is superb, but nothing like the 30+ offers my sellers were getting in 2020 and 2021.
If I were you I would consider house hacking (moving into one of the units or bedrooms) and pricing out what FHA v Conventional looks like. Nearly any lender should be able to compare those two loans for you.
Columbus, OH · Member since 2023 · 427 posts · 254 votes
3y
FHA loan will lock you in at a rate much lower than current rates, with a smaller down payment. However, smaller down payment=bigger mortgage payments, which alters your cash flows. I would meet with a lender and try to get preapproved and explore both options.
Realtor · Ogden, UT · Member since 2019 · 338 posts · 415 votes
3y
You shouldn't have to make this decision yourself! You should focus on finding the best local lenders and then having them explain to you which option would be better for you based on your down-payment, credit score, quoted rate, and intended use.
Lender · Westminster, CO · Member since 2021 · 92 posts · 86 votes
3y
So many pros and cons to both. Talk to a lender.
One thing I'll note is that FHA has an up front mortgage insurance premium. You are allowed to roll this into your loan amount (which most people do). So it's important to understand that although you are putting 3.5% down, you will likely start off with less equity than that due to a higher loan amount.