First Deal Strategy - Conventional / FHA - A bit confused

4 Replies

Just looking to clarify a few points so I can better understand the direction I want to move in REI.

As of today I have enough for a 20% down payment in my area. Triplex, owner occupied.

I am looking to move into my first deal for at least 2 years while renting out the other two units. After this time, I would move out and do this again with another property.

I see three scenarios here:

1 - Putting 20 down would allow me to get in to my first deal but would require a longer time to save for a down payment for a second deal assuming I go conventional. I believe (and please correct me if I am wrong) I could go conventional for my first and FHA for my second at 3.5% down payment with lifetime PMI or conventional at 5% down payment with temporary PMI.

2 - Putting 5% / 10% down with conventional, paying PMI until my equity is 20% and then getting rid of the PMI. Would I have to refinance for this or just re-appriase?

2 - Going FHA with 3.5% down and essentially repeating scenario 2 but having a permanent cash outflow for PMI. I see may folks on this site praising FHA but I do not understand the benefit. If I could put 5% down and avoid lifetime PMI plus all the other upfront FHA costs I would do it in a heartbeat over FHA. If I only had 3.5% I would save up until I could make the minimum for conventional. Unless there is something I am missing, why ever go FHA?

Looking for any insight that can be offered here on if I am asking the rights questions or missing out on a point entirely.

try and get the seller to carry the note, i dislike banks

Listen to episode 61. Ben discusses the benefits of having less money into the deal initially. If the deal will not cash flow enough to miss the 125 dollars a month for pmi then it may be a tight deal already.

I haven't done FHA since 2008, but I will try to offer what I can if it might help.

Most of your questions seem to be FHA vs conventional for pmi considerations.

Yes, if you tie up your downpayment money it will take you longer to recover. If you to repeat in two years, you know your income, calculate how much you could save back up in two years. If it shows five years to be able to do #2, then you have to decide if that is ok with you. If not, FHA on the first and protect th cash. Lifetime pmi is a cost of doing business. If it were $55/month, you are effectively borrowing the other 16.5 percent of the of the deal for $660/yr. divide this by the amount down you don't have to come up with then and see what it is costing you (effectively its interest rate)

So basically if you are intent on doing deal 2 in a couple years, that may make your choice for you so that you don't checkmate yourself right out of the gate.

Speaking with a lender today they mentioned I could use SONYMA rather than FHA to avoid a 20/25% down payment on a triplex. Has anyone here had any experience with this product?

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