Conventional loan rules

11 Replies

I'm looking at FHA vs conventional loans. I currently have enough money to buy a property, but I'd like to avoid paying higher interest rates or fees etc. I'd like to move into a duplex or a SFH. I'm curious if I could buy one of these properties with 5 percent down on a conventional loan and how long I'd have to live in the property with a conventional loan before renting? Any input is greatly appreciated.

Depending on your situation, a duplex will require 15% down. If your not a 1st time home buyer or in a certain profession with low income, you could be required to do 15% down on conventional loan for duplex. You could do 3.5% on FHA though. I am in the process of closing on a duplex and this is what I was told by my mortgage agent, so you may vary, but that's at least what I had for my situation.

@Account Closed  Here would be your options:
* 1st time home buyer - 5% down conventional loan (there can be restriction on income and/or location), will have PMI until 80% LTV
* 15% down conventional - will have PMI until 80% LTV
* 20% down conventional
* 3.5% down FHA - 1.75% upfront funding fee, will have PMI for life of loan
* 10% down FHA - 1.75% upfront funding fee, will have PMI for 11 yrs


Hi @Account Closed

It's all gonna come down to your end goals. Yes, loan programs like FHA with just 3.5% down payment are more risky... So you do have to pay higher fees.

But if your plan is to take your additional cash and invest in other properties... You likely would be ahead of the game to pay a bit more on your first property to be able to multiply the benefits of rental real estate by purchasing another...

Just my 2 cents...

A : )

Thank you for the input. This would be a second property. I think FHA would have to be the route to go. I'm having a hard time finding properties that have no tenants in the property. I'm trying to save money while renting out both properties. The primary home is more of liability than an asset.

You can buy an SFR with 3% down and no monthly PMI using conventional, non-govt lending if you are interested in paying a slightly higher interest rate due to lender paid mortgage insurance (seen as a slight adjustment to the cost of the loan that can be covered in a slightly higher interest rate or paid out of pocket as a fee). My opinion is that if you are buying a single-family, stay away from FHA unless you have bad credit. If looking to buy a duplex with minimal down, FHA is probably your best bet as the conforming route will cap you at a lower LTV. Of course, this assumes owner occupancy, which I believe is assumed for 1 year for any of the above.

Sorry, just saw the second property comment... if you own a primary residence that is an SFR, you'll find it very difficult or impossible to buy a duplex using an FHA loan unless you can prove the property will be owner occupied by some factor including location, job reloocation, or something of that nature. This can be very difficult when going from 100% occupancy in an SFR to 50% occupancy as you would have in a duplex (you'll only occupy half the property). FHA is very strict on rules pertaining to 'moving up' in size/ room count of a home or occupancy ratio.

Originally posted by @Upen Patel :
@John Powell Here would be your options:
* 1st time home buyer - 5% down conventional loan (there can be restriction on income and/or location), will have PMI until 80% LTV
* 15% down conventional - will have PMI until 80% LTV
* 20% down conventional
* 3.5% down FHA - 1.75% upfront funding fee, will have PMI for life of loan
* 10% down FHA - 1.75% upfront funding fee, will have PMI for 11 yrs

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

Legal stuff first: I am a licensed Sr. Loan Originator NMLS# 1157855 and am currently licensed to originate in IN, OH, KY, FL. If you are not in those states what I say may or may not apply to you. Please consult an advisor in your state.

 But Upen nailed this on the head. I like the FHA with 10% because it is a low down and gets rid of MI quicker. The only part I would add to this is FHA is only useable if you are moving into one side. If you choose the 3.5% just expect to refinance down the road into a better loan because you will dislike the MI after a while.
Originally posted by @Logan Drew :

Sorry, just saw the second property comment... if you own a primary residence that is an SFR, you'll find it very difficult or impossible to buy a duplex using an FHA loan unless you can prove the property will be owner occupied by some factor including location, job reloocation, or something of that nature. This can be very difficult when going from 100% occupancy in an SFR to 50% occupancy as you would have in a duplex (you'll only occupy half the property). FHA is very strict on rules pertaining to 'moving up' in size/ room count of a home or occupancy ratio.

Legal stuff first: I am a licensed Sr. Loan Originator NMLS# 1157855 and am currently licensed to originate in IN, OH, KY, FL. If you are not in those states what I say may or may not apply to you. Please consult an advisor in your state.

This is true excepting the items you mentioned or if he can demonstrate in a reasonable way that the property he is leaving is not useable due some factor such as expense or education. The is especially important if it has an FHA mortgage. If it is paid off or has a conventional he maybe able to swing it as he could show it would allow him to improve his financial situation to rent the old home and have a duplex to rent one side.

Be upfront with your lender and this is not a deal for a rookie to cut their teeth on.

Originally posted by Ashley Wishinski:

Hi @Account Closed

It's all gonna come down to your end goals. Yes, loan programs like FHA with just 3.5% down payment are more risky... So you do have to pay higher fees.

But if your plan is to take your additional cash and invest in other properties... You likely would be ahead of the game to pay a bit more on your first property to be able to multiply the benefits of rental real estate by purchasing another...

Just my 2 cents...

A : )

This is exactly what I am doing house hacking my duplex with a 3.5% down FHA loan. I figure if I can make 15-20% ROI reinvesting my money, it is much better then saving $100/month or so on MI. As others have said, it really depends on what you short/long term goals are.