FHA vs Conventional Fourplex

[Nicholas Sheridan, Jr.]

Hey everybody. I want to start looking at financing for a fourplex property in NJ and I am stuck on the fence between FHA or Conventional financing. This would be my first time buying a house and I am looking to house hack for at least 2 years and purchase a $400-450k property. I would be able to put down $40k and another $5k for closing costs. So far I have gathered:

FHA

Pros: 

• Low 3.5% downpayment

Cons: 

• PMI
• Required to live in the house
• Can only have one FHA loan

Conventional

Pros:

• No PMI once you hit 20% equity, or find a bank like Trustco Bank which doesn't require PMI

Cons:

• Usually higher interest rates
• Higher downpayment

Another thing to consider is that I am working full time right now and I have about $30k in student loans left to pay off (estimated $400/month). I was originally leaning towards the conventional because of the lack of PMI payments but now I think I should do FHA because I would like to purchase another property within a year after this purchase. Any recommendations? Thanks

[Marcus Lawson]

Hey man,

Btw, I'm in the town next door in a similar situation. Ultimately though, I'm going with an FHA because it keeps more capital free. Also, a conventional loan on a 10% down payment with a higher interest rate and PMI will most likely be significantly more expensive than a lower interest FHA. And then the fact that you want to buy another property relatively soon means you need to keep as much as your funds as possible.