FHA vs. Coventional

[Elijah Householder]

Hello all,

Pretty new to the forum still so apologies if this is in the wrong spot. But I have a question about conventional mortgages vs FHA.

I am looking to “househack” within the next 1-2 years. I am a recent grad and saving enough to put around 10% on 2-3 unit property with a PP of around $400k-$600k (In Socal so dont have many cheaper options).

So my question is, is there any reason I should choose an FHA over conventional? I know FHA offers a 3.5% but aren't first time home buyers able to do a 3% with conventional? Plus PMI drops off unlike MIP for an FHA.

Any advice would be greatly appreciated.

Thank you!

[Stephanie P.]

@Elijah Householder

FHA is the most "units friendly" way to purchase a property. With 3.5% down, it has the lowest barrier to entry. There are caveats though. As you mentioned, MI doesn't fall off with FHA and there's financed upfront MI as well, so with the lower barrier to entry comes long term cost not to mention the self sustainability rule for properties with 3-4 units.

If you can come up with the additional down payment (5% vs 3.5%), Freddie Mac's Home Possible is the superior loan product to use for 3-4 unit properties.

To answer your question about 3% vs 3.5%, 3% is for single family homes, not units.  Having a multi family property is the ultimate way to house hack, but having roommates, if you qualify without their income works as well.

Hope that helps

Stephanie