FHA vs. Conventional Loan

5 Replies

I am currently about to begin my real estate journey by house hacking. My one question is since I have already been preapproved for a FHA, would I still qualify for it if I first bought an Investment property with a conventional loan with a partner? Can I still get a FHA loan after I've already used a conventional on an investment property with another person? I ask all of this because I have found some nice townhomes that I have run the numbers and they would be cash flow positive! Id like to get the ball rolling since it could take some time to find a duplex or triplex but I don't want to risk losing my chance at 3.5% down with the FHA.

@Chace Corbett

Yes you can get an FHA loan even if you have a conventional loan in place. However, you are only allowed to have one FHA loan at a time. To get out of the FHA loan you would have to refinance your current mortgage, once that is completed you would then be able to utilize the FHA loan again. If you plan to continue to house hack in the future I would recommend trying to utilize the FHA loan down the road on the potential duplex or triplex as it can be more difficult to use a conventional loan on a small multi family property. However, you should definitely talk a loan officer/mortgage company and let them know exactly what your plan is and see what options might be best for you. I was able to purchase my first house hack using a conventional loan with only 5% down.

Yes you will have no problem getting an FHA loan anytime as long as you don't already have an FHA loan.

Be sure to look into all of the fees associated with both FHA and Conventional loans. Like @Kyle Davidson said, you can often get a conventional loan with as little as 5% down and the fees could be much less than an FHA loan. Shop around at many different banks and especially local credit unions for more options. 

Originally posted by @Chace Corbett :

I am currently about to begin my real estate journey by house hacking. My one question is since I have already been preapproved for a FHA, would I still qualify for it if I first bought an Investment property with a conventional loan with a partner? Can I still get a FHA loan after I've already used a conventional on an investment property with another person? I ask all of this because I have found some nice townhomes that I have run the numbers and they would be cash flow positive! Id like to get the ball rolling since it could take some time to find a duplex or triplex but I don't want to risk losing my chance at 3.5% down with the FHA.

Chance,

My advice to you is unless you are extremely strapped for cash and cannot come up with the extra 1.5% down payment, to never go with an FHA loan. Always go conventional. Convention loans are better in the appreciating market that we are in right now. The reason for this is that when you get an FHA loan, the PMI (Private Mortgage Insurance) sticks to the FHA loan for the full 30 years. For Conventional loan, when you have 20% equity in the home, it drops off whether thats in 6 months, a year, or 5 years.

So say you bought a $200,000 house in your market. PMI would probably be $100-$125 or so. For Conventional, you put the 5% down, and either make improvements to the house to increase its value or just wait until you pay down some mortgage + the house appreciates naturally and it gives you an extra $100-$125 in cash flow every month when it drops off.

If this does not make sense to you, I'd try google PMI and research it. Feel free to message me with any questions.

Happy Housing,

-Matt

@Chace Corbett

With any form of financing you choose, it's a numbers game.  Like @Matt Nico says above, the PMI sticks to an FHA loan forever now, so it's a less palatable loan product, especially when the MI is coupled with upfront MI and financed into the price. That being said, FHA is more forgiving on credit than conventional financing.

It's all numbers and if they work, they work. If not, you walk away. Get a good mortgage broker to sit down with you and go over the numbers specific to each house you're considering (and don't beat them up over an 1/8th point in rate or fees after they've helped you make the deal work).

Stephanie