FHA Loan vs Traditional Mortgage
Hi BP Folks,
I am new to real estate investing and looking for some advice on financing options. Currently, I know the type of investment property (multi family) I am seeking, strategy (buy and hold - potentially BRRR) I will employ, and my price range. With that in mind, I think I could qualify for an FHA loan with 3.5% down but I could also go the more traditional loan route with 10-20% down. My question is, is this a no brainer and I should go with the FHA loan? If not, what questions should I be asking myself to decide what makes the most sense for me?
Thanks in advance!
Raquel
Most Popular Reply
As long as you meet the credit requirements, going with a Conventional Loan may be the least expensive option. Sure, only doing a 3.5% down payment with the FHA means less money out of your pocket today but it also means you will have to pay Private Mortgage Insurance (PMI). PMI rates can add a few hundred dollars to your monthly mortgage payment, which continues for the life of the loan unless you refinance to a Conventional loan at a later date. With 20% down, you shouldn't need PMI. Also, typically FHA loans have higher mortgage rates than Conventional loans and a lower down payment will usually result in a higher mortgage rate.
Your banker, or other financial specialist, should be able to assist you with which financial road is best for your situation and goals.