So here is a bit of my story to help explain my thinking. I received my master's degree in May, 2014. Along with that came student loan debt...awesome! I have a good job, but student loan payments really take up a lot of that cash flow. Since I have began my real estate research, I have come across and learned a bit about FHA loans. I'm hoping to hear from those who have used FHA loans. I plan to live in my first property, so we can check that piece off the list! With such a small amount down (3.5%), I would expect to pay a higher interest rate, is this true? Are all FHA loans 3.5% down, or is it 'as low as' 3.5% with the possibility of the percentage down being greater? How difficult is the approval process? I've also seen 203k loans that can be added on for repairs, so I would love to hear from those who have taken advantage of them as well.
Thank you for any input!
@Mark Smith Here is the skinny on FHA loans:
* Down payment - 3.5% down min - you can do more, but it does not help with rates
* Funding fee - 1.75% FHA funding fee to be paid at closing. This can be rolled into the loan, so you don't have to come up with this money if you don't have it.
* MI - You will have a monthly mortgage insurance. No way to avoid this.
* Interest rates - FHA interest rates are usually lower then conventional loans, though I don't see this as a big advantage.
There are conventional loans that you can get for multi-family properties that might make better sense. It all come down to your credit, financial and the loan size, to determine which loan is the best option. A good mortgage banker should be able to help you with this.
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Thank you @Upen Patel ! That is great information.
I bought a duplex this year with an FHA loan. It was 3.5% down with an interest rate of 3.75%. This was my first time purchasing a home so I do not have anything else to compare the experience too, but my lender was quite chatty (15 min meetings would last 1-2 hours) so that was really the only annoying part...
As for the 203k loan, I know it is typically used with FHA loans, but I found a lender in Cincinnati that will do 203k loans for investment properties as well. The interest rate will be about .5% higher, but being able to lump renovations into your loan saves a lot of capital up front!
Thank you @Theo Hicks ! Glad to hear there weren't any major bumps in the road for you. I want to make sure there is no "catch" when getting involved with FHA.
An FHA loan was how I purchased my first duplex. 3.5% down with an incredibly low interest rate is the perfect way to start your investing career! It's a low risk way to learn all your first lessons.
If done correctly you can "house hack" (look up term, very common on BP) utilizing these low down payment FHA loans. You can only have (1) FHA loan at a time so the idea is to refinance the home with a conventional loan then repeat the process.
Best of luck Mark. My motto, jump in and learn as you go!
Thank you for your input @Joey Palmer ! House hacking is precisely what I am aiming to do! I'm glad to hear that it worked out well for you, it definitely gives me confidence!
@Mark Smith , these guys gave you some awesome advice. Also if you haven't yet check out the resources under the "Learn" tab. House hacking is a great way to start investing with little money up front and can allow you to pay down your debt while you learn as a landlord. I wish you the best.
Thank you @Bryan C. ! I have been reading blog posts, listening to podcasts all day at work, etc. I'm exercising all parts of the site!
I learned the other day that you cannot simply drop MIP after you have 20% equity in your FHA home. I would check into the other products that allow 5% down for a 1-4 unit... smaller credit unions around may carry them. If they allow dropping the MIP after 20% equity, I would think about them.
What I'm getting at is that in 5+ years when you are looking to refinance out of your MIP, you may not have more 3.5% loans available. If you can lock in that low rate now and know you can drop MIP without a refinance, that would be a big win.
There are some people on here VERY smart in FHA and other products. Hopefully they will chime in.
Thank you @Bryan O. . I'm not too knowledgeable at this point, so MIP didn't even cross my mind. I also did not know that with a conventional mortgage you could drop MIP once you have 20% equity, that is a great point!
I'm not 100% sure on that, so make sure and research. Hopefully one of the "smarters" will jump on.