Covington, KY · Member since 2015 · 21 posts · 28 votes
Hi all!
I am a new member currently in the Redondo Beach, CA area but will possibly be relocating to Cincinnati, OH or Northern Kentucky.
As part of my relocation, I am interested in purchasing a multi-unit property, in which I would love in part, and rent the rest out. I'm a single guy and not high maintenance, so I don't see it being an issue.
Why I would like some advice on, is if and when an FHA loan is a good idea. My credit is great and I would be able to handle 20% down on many multi-family listings I've seen in the area, but I'm wondering when using a FHA is a good business idea.
Thanks!!
If you have excellent credit, there is no reason for you to use FHA as an owner-occupant. There are plenty of lenders in the Cincinnati area that have LPMI conventional loans where you can still put down a minimum amount of cash (10% or even 5%). There is upfront MIP (mortgage insurance premium), which can be financed into the loan if you choose. There is no monthly PMI with these particular varieties of conventional loans.
If you use FHA, you will have the upfront MIP, as well as monthly PMI, unless you put down 20%.
So, the bottom line is, what would you do otherwise with your available cash if you didn't put it into the down payment on your residence?
I analyzed the pros and cons of FHA vs conventional and I found no reason not to go FHA. Yes, you have mip and pmi, but your interest rate being so much lower on FHA makes your monthly payments almost lower than conventional. What you would do with the available cash you'd have on hand by only bringing 3.5% down is save up for the next investment property or contribute to your reserve account. I think FHA is a fantastic way to go when starting out. It's a much less talked about way of financing in the banking biz for some reason. I'm guessing it has something to do with their sales structure.
If you have the MIP on a FHA mortgage you will never be able to have it removed no matter how much equity you build. The PMI payment for most other loans can be removed if you gain enough equity, often ~20%.
With an FHA loan, your down payment can be as low as 3.5% of the purchase price, assuming you have at least a 580 credit score. And closing costs can be bundled with the loan. In other words, you don't need much cash to close.