FHA vs. 20% down - need a primary residence, but might invest

1 Reply

Hi all,

I currently rent, and want to purchase my own place. I have sufficient funds for a 20% downpayment, but am debating if it might make sense to use an FHA loan only and put 3-10% down instead to keep some funds available for seeking out future deals.

Loan would probably be in the $400k range, which means

3.5% = $14,000

10% (MIPS for 10 years) = $40,000

20% (no PMI) = $80,000

Of course I'd take the 0.88% PMI hit by going FHA which really annoys me given that interest rates are rising already. Worth it though to hold onto some cash and look for other deals?

Living in a high CoL (washington dc/northern virginia) area is killing me because there aren't any real duplex type setups in the area which means i'd end up with a roommate to house-hack.

Go 10% FHA, pay a penalty for 10 years, and keep $40k free for remote investing? Just go with the regular 20% no-pmi and don't worry about it?

@Neil Quinn You should be able to get conventional loan programs that only require 3-5% down in most major MSAs. These are, mostly, better programs than the FHA program which was designed to cater to the lower-income demographic (hence, the low down payment requirement).

Unlike a FHA loan, under a conventional loan the mortgage interest component will automatically drop off once you have more than 20% equity.

FYI: For investment properties the FHA loan does not work (to my knowledge) where most conventional loan programs require 20% down payment.