FHA loan with fair credit vs. fixing credit and conventional loan

7 Replies

I am currently in the process of looking for my best loan option as a first time real estate investor. I have poor to fair credit that I have been steadily improving in the range of 615-625 depending on what score you look at and an annual salary of $80,000 this year. I think I would most likely be looking at a single family home as a rental or BRRRR in Saint Petersburg, FL or the surrounding area as I have not found a lot of multifamily options. What are the main advantages and disadvantages of going with an FHA vs. traditional loan and what would you do if you were looking for your first real estate investment if you were in my current situation? Thanks for any help!

@Jenna Michael FHA is only for primary homes. Having said that, you can use FHA and buy a duplex, triplex, or four unit property and live in one of the units and rent the others. Conventional minimum down payment for investment is 15%.

Hope this helps.

Originally posted by @Paul Defngin :

Jenna Michael FHA is only for primary homes. Having said that, you can use FHA and buy a duplex, triplex, or four unit property and live in one of the units and rent the others. Conventional minimum down payment for investment is 15%.

Hope this helps.

Is there an option to refinance the FHA loan into a conventional loan after a certain period of time and then use the property as a rental? Say that I lived in the property for the first year and rehabbed it and then looked to rent it out after the first year, would this be an option or would I just be better off waiting to improve my credit score and go with a conventional?

@Jenna Michael With FHA, you only have to live in it a year. After that, you can rent it out. I believe the credit score requirement is 620 and the standard down payment is 3.5%

@Jenna Michael If you plan is to occupy the property as you primary residence I would look into a conventional loan with 3% down using HomePossible or the HomeReady program.  You only need a 620 score to go conventional.  I would look at your credit to see if you how to increase your score to the 620 mark.

All knowledge I give is from research and not experience.

With an FHA loan, you’ll need to pay extra mortgage insurance. But since it’s government backed, fha insurance is generally much less than traditional loans (that are < 20% down). An FHA mortgage insurance is probably around 1.75%

Also, there is another yearly premium of like .4%-.8% (paid monthly) with FHA

Another con, you’ll be paying more per month since your down payment is lower. This will lower your cash flow.

As you mentioned, you can refinance to another loan after a certain amount of time (1 year?) and remove this insurance in most cases.

Also, you had mentioned you were doing some rehab? There is an FHA 203k renovation loan you can look into (you probably already have). You’ll get money to buy the appartment as well as doing some renovations.

There is definitely no right way to do this. Id say go with 20% down traditional loan to avoid insurance, premium and higher monthly payments IF you can. If you NEED renovation money, then maybe an FHA 203k is best...OR maybe you can get a private lender or family or your cash reserves to cover the renovation.

And these aren’t your only options! Like Melvin mentioned, there’s homepossible and probably 1000 other ways to get the money. (I am not vouching for homepossible, idk what it is)

There is a ton of fha/traditional info already on the forums and online. It has helped me a lot

Updated 8 months ago

Edit: https://www.youtube.com/watch?v=JSwMOR2H-Po This teaches a lot about the pros and cons of FHA'ing

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According to information you provided FHA would be good option if you occupied this property as Primary residence. You will get lower interest rate and lower MI under FHA because your score is lower but get a comparison from your lender for FHA and conventional loan.

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