FHA v Conventional with excellent credit & no debt
Newbie here, looking to get into my first deal. I want it to be a 2-4 unit, used as a primary residence. My question is how should i finance this? I have no debt and a 780 credit score. My understanding is that conventional is cheaper, but for multiple units you have to put down 15%-25% ; and for FHA you only need to put down around 3.5% with a higher PMI. Any thoughts, comments, concerns, suggestions, opinions are much appreciated.
There is a chance you can get a conventional loan on a 2-4 unit property with 5% down. If your qualifying income is below 80% of the area median income you can get a conventional loan on a 2-4 unit property with a Homepossible mortgage. Rates are discounted and PMI is discounted as well.
Important note - Most people get very excited when they see this program but then quickly dismiss it when they realize the maximum qualifying income is pretty low. Ranges between 55k-75k per year in most markets. Before dismissing the program it is very important to define "qualifying income". The qualifying income is the income source you need to qualify. It is not your total overall income or household income. This means that if you have multiple sources of income, and you qualify with one of the income sources which is under the 80% area median income limit then you can still qualify for the program.
For example....Lets say you are looking at a 2-4 unit property just south of Lexington KY and you see there is a qualifying income limit of $69,840. Let's say you have a sales job where your salary is $64,000 and you make a commission of $36,000 per year. You made $100,000 last year so you will be disqualified from the program..... Not so fast. If your lender can get your debt to income ratios to work using just your base income then you can qualify for the program.
This is the link from Freddie Mac where you can search the income limit by address. https://sf.freddiemac.com/work...
I recommend conventional. Down maybe more but your DSCR will greater with better ROI and less expenses on the settlement statement. I can answer your questions. Been doing real estate financing since 2012.
Depends. What is your income, sale price, city location, cash reserves. Your situation which is not the same as everyone else. Twenty factors determine the best choice. FHA you are stuck with 1.75% PMI, conventional more picky on FICO and debt to income ratio. Do you need an apple or a banana? Talk to someone with a NMLS license who can take the yellow pad and write out: payment, down payment, reserves, FICO, DTI, cash left over for repairs, goals, time frame for hold, market trend in the city, what fits best for you...