House hack loan guidance

[Sal Orlando]

Do you have to use the FHA loan for a house hack? If the numbers smooth out without it wouldn't it make sense not to use it if you can afford to put more $ down?

[Sam Lewis]

You do not have to use an FHA loan for a househack. What I recommend is going the conventional route and putting 3% down if you plan to live there (owner occupied). You can do a low down payment conventional mortgage once a year (i.e. Freddie Mac, Fannie Mae, etc.)

A common term you'll come across in real estate investing is leverage. If you can access more property with less capital out of pocket, it may allow you to grow faster through leverage. 

Let's say you are eyeballing a 200K home. If you do 3% down, you'd pay 6K in a downpayment plus another 6K in closing costs (12K) total. You will have a higher loan payment since your loan amount is higher (194K), but you have access to a 200K property that you can rent out and ideally cash flow positive.

If you do 20% down, you'd pay 40K towards the down payment plus another 6K in closing costs (46K) total. While your loan payment will be lower (160K), you'd cash flow better and avoid paying any PMI (principal mortgage interest). Now both options have their pros and cons. While Option 1 is a little riskier, Option 2 staggers your growth and doesn't allow your money to work for you as much.

Your ROI will be much higher with the first option, and one that I highly recommend if you have steady income, solid credit, and plan to live in the same area for the next 2-3 years.