Should I put more down?

Question

Hey all, I have about 100K to invest and want to start with a multi family house hack. My question is, should I use an FHA loan and put the least possible down or should I bite the bullets and put 20% for a conventional loan and better rate without PMI?

Jimmy Lieu · Answer

This is a really good response. Even with FHA's upfront mortgage insurance and MIP, it is still a better deal than a 20% down for a conventional loan?

Also, I believe conventional loans can go as low as 5% right? So would this possibly be better than a FHA loan at all?

I would love some more insight on this!

Greg Dorn · Answer

@James Walsh I work mostly with refinances but if I was doing it myself (going to start again later this year in PHX) I would shop lenders in your area and look for a conventional loan that will let you do a 3 to 5% down payment. With a conventional on a duplex you can borrow into the 650K range and it is still a conforming (not jumbo so better pricing/rates). You will have private mortgage insurance on the borrowed funds above 80% only and it can drop off without a refinance.

ALSO most people dont know but an FHA loan has monthly Mortgage Insurance Premium (MIP) but they also charge a 1.75% insurance premium on the front of the loan. Lastly, rates with the FHA can be more than what a competitive lender will offer on a conventional loan

Only real time to do FHA is if your credit is under 640 but if that is the case you down payment would be better spent on fixing and building your credit and waiting to buy something till you get it fixed/improved.

Ujwal Velagapudi · Answer

I would leverage what you can to make your equity work for you...but make sure to underwrite it strictly and buy right. If you're buying it truly under market value, still have additional value add opportunities, and are in it for the long haul then I'd say go try putting as little down as possible via the FHA. Also, your lower downpayment I think will go further than a slight decrease in the interest rate.

Nick Riccio · Answer

@James Walsh I don't think either option is "right" but it depends on what you're looking to accomplish. FHA route will allow you to stay liquid, learn to be a landlord while living on the property - and benefit from great FHA pricing and higher COC returns with minimal cash in the deal. You can always refinance out of the FHA loan into a conventional product after a period of time ( I refinanced out of mine in 6 months after acquisition).

Brian Ellwood · Answer

Can you still do an FHA if you already own a property, even if it's an investment property? I'm not sure on that one.

Bjorn Ahlblad · Answer

@James Walsh now is a good time to keep as much cash as you can. Money is cheap but the lending criteria is getting stricter. Who knows what it will look like in another month or two. I would go with the least money down and look at it again early next year. All the best!

Brian G. · Answer

@James Walsh put the minimum down but always keep hefty reserves just in case. Would you rather have an extra $20k paid down on the property that’s hard to access or an extra $20k in the bank? Cash is King.

Carl C. · Answer

We generally have an unpopular view point that its never a bad idea to put down as much as you can. Being over leveraged is risky although it will keep your cash available for other options. Whatever you decide, make sure that you can more than cover your expenses with the income or in the case of a house hack in an expensive area, make sure that you are covering MOST of your expenses with the ability to cover them all and them some if you were to move out and rent your unit.

Brian Ellwood · Answer

It really boils down to the deal - how will the #'s actually look in both scenarios? What market are you in? Do you have some rough #'s we could use for an example?

Without knowing that, I'd lean toward the FHA route - it's always best to make your cash stretch as far as you can - as long as the property is stabilized and cashflowing of course. If your goal is to scale your portfolio, you don't want to overleverage yet you don't want to be too conservative either.

Should I put more down?

Most Popular Reply