Hello all, my first post on BP - excited to be here! Been a long time fan and looking forward to chatting with everyone & learning from you all!
I am a first time homebuyer looking to house hack in Washington, DC - born and raised in the area. I am super keen on living in the city but unfortunately any SFH/Rowhouses (a dc term for townhouse) are at least 750K+. There are very few, if any MFHs, in that ballpark in even semi-desirable locations. I am set on living in the city and not 45+ minutes away from the city where prices are still absurd.
The best avenue I have found so far is what I am calling a 'proxy duplex': rowhomes that can be an updown split with shared utilities. I know it is not ideal but based on research and boots on the ground it is amongst the best I can find. A typical layout would be something like a 3/2 upstairs and a 1/1 downstairs.
Anyways, trying to get some guidance on a couple of key points:
- Does FHA 3.5% hold any advantages over a say 7% down payment with conventional loan? I have near perfect credit score so I believe I would be able to get this loan.
- Ideally I go in on this alone (hence the question above) but I also have a partner who is willing to put down half of a 20% down payment - any recommendations on how to split cash after I have moved out from this being my primary residence?
FHA is generally going to be looked at as subpar in this market. 3% down home ready conventional loan will make it easier to get your offer accepted.
Your approach seems to be the most adequate if you are not willing to be in semi-desirable areas.
Conventional loan 3% down is the ideal scenario. As per the second option unless you can split evenly half and half responsibilities and money in the deal is a bit complicated as there are a lot of factors involved.
Thanks to both Joaquin and Russel! Glad to hear I am not crazy haha. The more I think about the small down payment and then finding renters the more it makes sense. I guess I got caught up in the idea of an FHA and just ignoring it.
It seems like a conventional loan has many more advantages - is there a reason it is not used more in the house hack scenario? Why is the FHA the default in the low down payment approach? I know it is much easier if someone has a lower credit score/down payment but I havent read much about conventional loans effectively acting in the same manner so it has me wondering...
Thanks in advance (again)!!
FHA on single unit properties is reserved for the lowest caliber borrower since it has lower credit score requirements and allows for higher DTI. In our market, its virtually impossible to get an offer accepted with FHA.
This generalization does have an exception for multifamily due to multifamily conventional loans start at 15% down. On single units they start at 3%. So on a multi, thats the only time you want to consider, and a seller would consider accepting an offer with.
Thanks a bunch Russel! That's very helpful & helps me refine my strategy.
As I am not going after a multifamily, I think I should be set with with the 3-5% conventional loan. By all measures I am extremely qualified for a loan (credit score, income, etc).