FHA vs Conventional Loan (Good Credit)

10 Replies

I will be purchasing a duplex in 2020 to househack and have started to research different loan options. The most common loan I have come across is the FHA loan at 3.5%. What is the benefit for using an FHA loan compared to a conventional if I have credit score of 800? I only want to put down 3.5%

Originally posted by @William Henry :

I will be purchasing a duplex in 2020 to househack and have started to research different loan options. The most common loan I have come across is the FHA loan at 3.5%. What is the benefit for using an FHA loan compared to a conventional if I have credit score of 800? I only want to put down 3.5%

Your payment on an FHA loan will be a couple of hundred dollars a month MORE to cover the PMI. I'd talk to a mortgage broker in your area and compare loans. There will be quite a difference depending on your choices.

 

Originally posted by @William Henry :

I will be purchasing a duplex in 2020 to househack and have started to research different loan options. The most common loan I have come across is the FHA loan at 3.5%. What is the benefit for using an FHA loan compared to a conventional if I have credit score of 800? I only want to put down 3.5%

Then the advantage of FHA is you can actually do it, at all, with the down payment specified. :)

@William Henry your 3.5% down pretty much sealed the deal for your choice. If you don't have enough for even 5% down you probably aren't in a good place to be buying a rental. With the FHA loan, you will pay PMI for the life of the loan, but the interest rate is lower than conventional. In my 1 FHA 3-plex it made the payment the same as conventional. If you went conventional with 5% down, PMI will still be there, but you can have it dropped without refinancing. Most conventional owner-occupied 5% type loans were for single family, but there were a couple out there last time I checked a couple of years ago that were doing for up to 4 unit.

@Bryan O.

I disagree about “you can’t afford”....

I chose fha on a multi family. I could have put more down, but chose to keep cash to buy another property. Maybe he has more cash, but will keep that for reserves.

What’s funny is that tons of people buy homes every day without $5, 10, 20k reserves, but suddenly people shouldn’t buy duplexes without a bunch of cash reserves?

@Anthony Wick it is possible, but when the only listed requirement is the 3.5% down payment, that's a pretty good indicator that there is a reason. PMI wasn't mentioned, interest rate wasn't mentioned, only a 3.5% down payment. That is why I assume reserves are low and I might be wrong, but to your small miss being a huge error of a conclusion, people should not buy duplexes without enough cash reserves to be able to do 5% rather than 3.5% ;)

If it cash flows for you and 3.5% down for FHA works I say go for it. You can always refinance out of the FHA loan later.

The alternative to FHA at 3.5% down is the Freddie Mac Home Possible loan at 5% down. Yes the rate will be a little higher than the FHA rate, but the MI is lower so they should come close to equaling out on the payment. The advantage is that you can get rid of MI once you have 20% equity or are at 80% LTV. You may have to do an appraisal to prove it, but you wont have to refinance to do it. See the link down below:

http://www.freddiemac.com/sing...

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