Is it smart to FHA instead of a conventional?

Question

Hi everyone, I currently do not have 20 percent down for a conventional loan, I am looking to acquire a rental asap! I am thinking of using an FHA loan and living in a single family home/duplex for 1 year. After the one year, I move out and rent it as a long term rental. Is this a smart idea? I can get equity built asap? It would be about a year or so before I could even save up the 20 percent if I didn't use an FHA.  Just trying to get started, appreciate any advice and tips. Thanks!

Marnit Brown · Answer

You didn’t share your specific numbers, but the short answer is it depends on your goals. FHA makes sense if you need the low down payment and have credit challenges, but that MIP stays for life if you put less than 10% down. In 2026, with rates around 7-7.5% conventional, FHA’s lower rate can look appealing, but the upfront and monthly insurance often eats those savings. If you plan to hold long term or rent the property, conventional lets you drop PMI once you hit 20% equity. For a house hack, FHA can work, but run the numbers on total cost over five years to see which actually wins.

Aaron Zimmerman · Answer

If you qualify, I'd take the conventional. Less PMI and one less inspection. This ultimately means your numbers can work out better and it's a more competitive offer.

Mohammed Rahman · Answer

Hey Landon,

Love the enthusiasm and the desire to jump right in. There's no better teacher than experience.That said, I'd offer a word of caution. If you're not yet in a position to put 20% down, make sure you're also thinking about closing costs, reserves, maintenance, unexpected repairs, vacancies, and the other expenses that come with both homeownership and being a landlord.As for FHA, I actually think house hacking is one of the best uses of the program. Living in the property for at least a year, building equity, learning the ropes as a homeowner, and then converting it to a rental can be a great way to get started in real estate investing.The bigger question isn't whether FHA is smart. It's whether you'll still have enough cash left over after closing to handle the inevitable surprises that come with owning a property. I've seen investors get into trouble because they stretched every dollar just to get the deal done and had nothing left when a major repair popped up.If the numbers work and you have a healthy reserve fund, an FHA house hack can absolutely be a solid first step. Just don't rush into ownership without enough capital to weather the bumps along the way. That's where a lot of first-time investors get burned.

I work with a lot of first-time investors. Feel free to reach out - my DMs are always open!

Aaron Zimmerman · Answer

I would do 5% conventional if at all possible. There's less PMI and closing costs and a better loan product overall. FHA also has two inspections.

Drew Sygit · Answer

If I was starting out single, I'd look to acquire a 2-4 unit property with an FHA 3.5% low-down payment mortgage.

I’d also look into using an FHA 203k renovation loan, allowing me to buy something ugly, thus unqualified for a standard mortgage, which would weed out a lot of competition and push the price lower.

To maximize my cashflow and gain landlording experience, I’d do STR and MTR in the other units, as well as the other bedrooms in my unit. Since most cities won’t allow basement rental units, I’d consider finishing the basement, just well enough for me to live down there (cities don’t care if owner chooses to live in basement), so I could rent out ALL the units.

I’d save all my cash and look to refi the property in 1-2 years out of the FHA mortgage, so I could use it again if necessary. Depending on how close I was to having 20% equity in the property and being able to avoid PMI, I’d consider using some of my cash to pay down the mortgage when I refinanced. Otherwise, I’d save my cash for the next acquisition.

I’d also be posting on every social media platform and telling everyone I knew that I was looking for more real estate deals. I’d aim for low downpayment land contracts and lease options.

After refinancing out of the FHA mortgage, I’d evaluate if I wanted to repeat the 2-4 unit FHA 203(k) process again or if I had the 20% down to target 5+ units.

While still living in the property, AFTER the refi out of the FHA mortgage, I'd also explore securing a HELOC to tap my equity for emergencies.

Good luck with whatever you decide to do!

Jules Aton · Answer

Consider the market. In general I would accept conventional offer over FHA.

Kevin Sobilo · Answer

@Landon Nilson, a few thoughts:

1. You can get low down payment conventional loans! Loans at 5% down payment are usually available.

2. One BIG difference with going conventional is MORTGAGE INSURANCE!

With FHA, you pay a lump sum at closing towards that AND ALSO pay a monthly mortgage insurance premium for the life of the loan!

With a conventional loan you only pay monthly AND it drops off when you gain 20-22% equity by either paying down the mortgage or by improving the property, or by market appreciation.

So, with a conventional you can save a lot if you keep that loan a long time!

3. One advantage of an FHA loan over a low down payment conventional is seller-assist. With an FHA the seller is allowed to pay up to 6% of the sale price to your closing costs while with a conventional 3%.

This may or may not matter depending on if you have enough money for closing costs etc. To get the seller to pay for those costs you are generally paying a higher sale price, so its really more of a way to finance closing costs.

4. An FHA loan may have lower standards for things like credit. So, if you can't quite qualify for a conventional an FHA loan may be the main option for you.

Minho Lee · Answer

Landon,

If you’re going the FHA route, I’d recommend house hacking a small multifamily (duplex, triplex, or fourplex) if you can find one in your market. Living in one unit and renting out the others can help offset your mortgage from day one, which makes the numbers a lot more forgiving.

After the 1-year occupancy requirement, you can move out and convert it into a full rental, which is a great way to build equity and start your portfolio.

The key is making sure the deal still works as a rental after you move out—run your numbers conservatively, factor in vacancy, maintenance, and reserves.

You don’t necessarily need to wait to save 20% if you can find a deal that makes sense now. FHA + house hacking is one of the most efficient ways to get started.

Abel Curiel · Answer

Hello Landon,

Will the rent cover your expenses after moving out?

Are you planning to buy a property that needs some work?

If you're buying in a market with increasing demand, population growth, and median sale prices, you might build some equity in a few short years.

That said, it is risky to bank on appreciation, so I'd recommend looking towards a duplex in a market where rents are steadily increasing. For example, there are high-demand submarkets near me where values have been stagnant for 4-5 years, BUT median rents have gone up by 15-25% over the same period.

A benefit of waiting another year would be saving 100s each month on your mortgage by going conventional and avoiding mortgage insurance.

FHA has some pros, including lower qualification requirements and lower interest rates. The main pro in your situation would be getting your foot in the door sooner.

Lots to consider here so I'd recommend staying active on these forums and speaking with local investors, agents, and lenders.

All the best!

Abel

Is it smart to FHA instead of a conventional?

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