Financing a househack - FHA vs Conventional?

[Brendan Daly]

Hi All,

I'm looking to get some community input on how you would finance a househack. I'm looking to purchase a 2 - 4 unit property and live in one of the units. I know that doing an FHA mortgage is quite popular on BP because it is a good way to get into real estate investing with as little money as possible. However, would you do an FHA mortgage even if you could do conventional 20 - 25% down? I have excellent credit, the ability to put 20-25% down and strong W2 earnings. I have spoken with some lenders and I have a few options:

1. Do an FHA and pay the upfront and monthly MIP

2. They have offered portfolio loans (10/1 ARM or a piggyback fixed 30) that would enable me to do 10% down without MIP but a slightly higher rate (about .25% higher)

3. Do a conventional 30 year with 20 - 25% down depending on the number of units

My ultimate goal is to live in the property for a year and then purchase another one in a year. With the first 2 options (FHA or 10% portfolio loan), I could easily have enough money for another downpayment. If I do a conventional, then I would look to do a HELOC in a year to reduce the property's equity position and put it toward the down payment of a second property. I've been told some credit unions will do up to 95% LTV HELOC so that would basically be like having an FHA mortgage without upfront or monthly PMI.

What would you do - pay a slightly higher rate (or MIP) now for more a higher LTV and hold on to cash for a year, or do a conventional now and pull out equity via HELOC in a year? My assumption is I can get a HELOC within a year of the purchase, but please let me know if there are more stringent holding periods to qualify for a HELOC.

Thanks!

Brendan