Which Loan Option is better for Househacking?

[Elie Merisier]

Hi. I hope you're doing well while reading this.

I am looking to HouseHack a multifamily property. My credit score is above 740, I'm a first-time home buyer, and I recently graduated college. My DTI is roughly 25%. Which Loan Option should I use, conventional or FHA? Is one better than the other for Househacking?

[Derek Brickley]

Hi Elie! I think an important question to ask is how much you can/want to use for a down payment. My guess would be you're looking to put as little down as possible. Are you looking at buying a property with 2-4 units or house hacking by the room in a single family home? The good thing about FHA is that you can put 3.5% down on a property 1-4 units. Conventional is a bit more complicated, and the options depend on your income and your specific lender. Some lenders will allow 3% down on a single family home, but generally there are income limits. On anything 2-4 units you could get a conventional loan with some lenders for as little as 5% down (but this also has income limits). You would need to talk to your specific lender to see what they could do for you. With your credit score and low DTI, if you are eligible for a conventional with 5% down that may be the better option since your mortgage insurance would be less and it automatically falls off when you get 20% equity (compared to FHA which never drops off with some exceptions). In my mind, if you qualify for this conventional program then you could house hack with this type of loan twice without refinancing and then if you decide to house hack after that you could then use an FHA loan. However if you do the FHA loan first, you would only be able to use the conventional 5% down program once. A lot of info here … but I hope it helps!