FHA 3.5% Down or Conventional 15% on MFH?

Question

Hi all,

Looking for a MFH 2-4 unit to buy and live in. I’m not doing much rehab on it, so mostly turn key, and finding one that I can cash flow when I eventually move out of the MFH into another property. I figure while I’m living there, I won’t be making cash flow, but I’ll be living there temporarily for $500 or less per month which is much better than my situation now.

Anyways, my question is about the down payment. I spoke to a lender who says I can get an FHA with 3.5% down or a conventional with 15% down only for a 2-unit.

My question: is the FHA loan only useful if I put a low down payment and keep moving out/in other MFHs year after year with and more FHAs? I think I'm only going to move in and use the FHA once. I don't plan on moving in and out utilizing the FHA loan. So in that case, is it a poor financial decision to only utilize this once, with the mortgage insurance and everything? My capital is limit FYI so that's one reason why the 3.5% is looking like a solid choice for me (now).

Mike McCarthy · Answer

@Johnny Lasek A friend loves the FHA loans. Much easier to get into. Sure you pay a bit more with PMI, but as long as it’s figured into your analysis, it’s just like you’re paying a slightly higher rate.

The question is always - what will you do with the extra cash if you only put 3.5% down? If you’ll invest it and get it working for you at a higher rate than that PMI, go for it!

Some people like higher equity in their properties, others swear by leverage. What do you think will work best for you in the long run?

Calvin Ozanick · Answer

I would say save up until you do not have to pay mortgage insurance on it (20%). After that, just purchase it and have it cashflow from day one. Then you will not have to worry about it.

Mike D'Arrigo · Answer

@Johnny Lasek You're going to be paying mortgage insurance either way unless you put 20% down.