What is better for my first deal FHA or Conventional

Tampa, Florida
House Hacking
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What is better for my first deal FHA or Conventional

Ruvim VaskovetskiyPro Member
Member since 2026 · 5 posts · 1 vote

Hello everyone, my name is Ruvim And I am new to the real estate game. I am trying to avoid as much mistakes as I can and wanted to reach out to you guys for help.

Is it better to go for a FHA loan for my first deal or go for a conventional loan?

I don't have much money to start off with so I wanted to go the FHA route my buy box is around 250-300 k. but there are limitations with cash flow for the first year when buying a single family or duplex with FHA rules. I would have to get a triplex to get positive cash flow right from the start because of the 75% rental income that goes toward you qualifying for a loan


With conventional loan the down payment is massive for my current buy box but the positive is that I don't have the limitations like FHA has. I can rent multiple rooms out for example if I buy a house for 300k that has 4 beds 4 baths I can rent each room for 1000+ a month and that's where I will get positive cash flow after all is said and done. If you have any insight on this I would love to learn from you 

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Rick Albert
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
8mo

Keep in mind with conventional you can go 5% down. FHA is 3.5% down but has FHA fees so an argument can be made you are paying 5% one way or another. Only difference is you can have the PMI removed on the conventional loan without refinancing.

Where FHA shines is you can have a higher debt-to-income ratio, which increases our buying power. Your payments are higher but you are house hacking, which helps alleviate the pressure of higher payments.

I saw analyze properties going both ways. Keep in mind in most markets putting such little down won't cash flow. Otherwise investors will pick it up putting 20%-30% down no problem.

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    8mo

    @Ruvim Vaskovetskiy thanks for posting!  It is difficult to know what to do in the beginning.  When I first started, I didn't even know what questions to ask!  So, keep digging and keep learning.  You will get there.

    Formally, we can't advise you and the best loan for you without an application.  Yes, I can certainly explain all the differences between the loans and write an entire novel on it...or you can just complete a free application and have a custom presentation of your options.  And that's what I would recommend here.

    Getting "prequalified" (that's what we call completing an application and having someone present your options) should be free to do.  It should only be a "soft" credit check (so it doesn't harm your credit) and I would high recommend it come from a lender that was REFERRED to you.  Meaning, someone who has worked with that lender before and had a good experience. How do you know that a contractor is any good? An electrician? A title company? Anything? Even if they do have 20 years experience...how do you know really? And while nothing is foolproof the most consistent method of finding good vendors is relying on OTHER people that have worked with those vendors - including lenders.

    We usually start with the realtor first.  A good realtor should have good lenders that they can refer you to.  It's not required to do it this way, but that might be a good starting place.

    Maybe you qualify for a first time home buyer grant?  Maybe you can qualify for more than you think?  The only way we know for sure is to get prequalified.

    Hope all of that makes sense.  And yes, we do lend in Florida.  Here to help!

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  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    8mo

    Strictly looking at the two loan options, if used responsibly FHA financing can be an enormous benefit early in your investment journey. FHA leverage paired with meaningful appreciation is the best ROI but buying in an appreciating market is critical. If you hit right with a purchase that experiences a significant appreciation bump early in ownership even better.

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  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    8mo

    I’ll provide a real-life case study. Between 2013 and 2015, a business partner and I acquired roughly 30 single family homes in the West Germantown neighborhood of Philadelphia. These were typically $50,000 purchase and $40,000 rehab properties. We leased them for roughly $1,300/m.

    At the time, we focused almost entirely on cash flow, not appreciation. That was largely because we did not yet understand the business we were actually in during the earliest stage of our real estate careers.

    In hindsight, we regretfully elected to sell most of the homes in 2016. The majority of buyers were FHA purchasers who acquired the properties for $140,000 to $150,000. Between 97.5% financing and seller assistance, most buyers brought less than $10,000 to the settlement table.

    By 2019, those same homes were reselling for approximately $275,000. My example was the perfect storm...acquiring a completely renovated home and then immediately riding the appreciation waive but there's no better ROI than what those buyers experienced.

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  • Patrick McKeown
    Real Estate Consultant · Member since 2025 · 9 posts · 3 votes
    8mo

    FHA isn't bad for a first deal if your main goal is just getting in with limited cash. It works best as a house hack, where you're more focused on lowering your own housing cost than crushing cash flow right away. Duplexes or triplexes usually make the most sense with FHA for that reason.

    Conventional gives you way more flexibility, especially if you want to rent by the room, but the higher down payment is the trade off. That strategy can work, but it’s more management-heavy and you’re tying up more cash upfront.

    For a first deal, a lot of people do FHA, live there, learn the process, then move on to conventional for the next one. Breaking even or slightly negative at first isn't a failure if it helps you get started and build experience.

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  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    8mo

    Keep in mind with conventional you can go 5% down. FHA is 3.5% down but has FHA fees so an argument can be made you are paying 5% one way or another. Only difference is you can have the PMI removed on the conventional loan without refinancing.

    Where FHA shines is you can have a higher debt-to-income ratio, which increases our buying power. Your payments are higher but you are house hacking, which helps alleviate the pressure of higher payments.

    I saw analyze properties going both ways. Keep in mind in most markets putting such little down won't cash flow. Otherwise investors will pick it up putting 20%-30% down no problem.

    1Reply
  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    8mo

    Have you considered a 5% conventional loan? I'm not 100% sure on the reserves requirement though

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  • Sarita ScherpereelBusiness Member
    Real Estate Agent · Chicago, IL · Member since 2018 · 659 posts · 376 votes
    8mo

    In addition to what has been said on this thread I wanted to add that I think it depends on the property. FHA have an inspection that is required for financing not all properties meet the criteria to qualify. Most do, but you might have to fix things prior to close which can be annoying and if the seller is not willing to do the work, it would fall on you or the deal falls apart. Make sure you work with an agent that is hyper aware of what to look for in your market. Chicago (my market) has 100 year old buildings that can be a little tricky. Sellers in our market prefer to work with financing that does not have to work with the additional FHA scrutiny. That said, we still do a lot of these deals despite the self sufficiency test as well.

    If you're able to keep both options open and cast a wide net and make your decision case by case, I believe that will position you for the best success. Think about this more like - you have options and either or might work. Run your numbers to see what is best on each homes individually conditions and needs. 

    Best of luck! 

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  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    8mo

    @Ruvim Vaskovetskiy it really depends on the property you're going after. You can buy with as little as 3% down with conventional as a first time homebuyer, and 3% with FHA. Where it really makes a difference in which loan you choose is the property type, your credit score, and what your overall strategy is. Happy to dive deeper on this for you. Seems like you have a few good thoughts spread out there!

    [email protected]619-456-8311
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  • Alan AsriantsBusiness Member
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    8mo
    Quote from @Ruvim Vaskovetskiy:

    Hello everyone, my name is Ruvim And I am new to the real estate game. I am trying to avoid as much mistakes as I can and wanted to reach out to you guys for help.

    Is it better to go for a FHA loan for my first deal or go for a conventional loan?

    I don't have much money to start off with so I wanted to go the FHA route my buy box is around 250-300 k. but there are limitations with cash flow for the first year when buying a single family or duplex with FHA rules. I would have to get a triplex to get positive cash flow right from the start because of the 75% rental income that goes toward you qualifying for a loan


    With conventional loan the down payment is massive for my current buy box but the positive is that I don't have the limitations like FHA has. I can rent multiple rooms out for example if I buy a house for 300k that has 4 beds 4 baths I can rent each room for 1000+ a month and that's where I will get positive cash flow after all is said and done. If you have any insight on this I would love to learn from you 


    Here are the main differences between going FHA versus conventional:

    FHA:

    Pros - typically lower rates, as low as 3.5% down, lower qualifying criteria (higher DTI possible)

    Cons - PMI for life of loan, makes buying Triplex or quadplex nearly impossible because of self sufficiency test (at least in my area), stricter appraisal conditions

    Conventional:

    Pros - No self sufficiency test, no PMI for life, easier appraisal conditions

    Cons - tougher to qualify, rates a bit higher


    The best answer is to which one to use - it depends.

    It's all about the numbers. About a year ago or so it was more favorable for people to use FHA as they were getting better returns because the interest rate was much lower even though you did have PMI for life. It worked out that you would put less money into the deal, but cash flow more. With the rates easing up a little bit that might be different now. Just do the math with your lender

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 590 Reviews
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  • Laura ShinklePro Member
    Realtor · Charlotte, NC · Member since 2017 · 357 posts · 292 votes
    8mo

    @Ruvim Vaskovetskiy there are way too many unknowns with your situation for anyone to tell you specifically what to do without looking at your finances. Really the best answer is to find a Realtor in your area, get pre approved with lenders (I'd ask your Realtor for recommendations) and pick their brain. Once they have your application, they can answer any/all questions you have and advise what's best for YOUR situation. A GOOD lender is an advisor as well, not just a bank. There are a ton of options out there, and it all is going to depend on your finances, cash position and what your goals are. 

    If you need a Realtor, you can find them on here as well as ask friends for a referral/others that have done what you're wanting to do. Interview them and make sure they understand and can help you do what you want to do. Not every agent is created equal, same with lenders. So don't just settle for the first one you find. Make sure you're comfortable with them, since they're advising you on the biggest purchase of your life thus far! Good luck!

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  • Daniel Jantz
    Member since 2026 · 5 posts · 1 vote
    1mo

    this was super helpful, I have a buddy who is a well known realtor that I’ll talk to! Thanks so much. 

    0Reply
  • Laura ShinklePro Member
    Realtor · Charlotte, NC · Member since 2017 · 357 posts · 292 votes
    1mo

    As a buyer you usually have less competition and more negotiating power between now and Christmas so use that to your advantage! Now is a great time to talk to lenders and start looking. The process usually takes 60-90 days to find the right house but longer if you have very strict criteria. Get rolling now! :) 

    0Reply
  • Ken M.
    Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
    1mo
    Quote from @Ruvim Vaskovetskiy:

    Hello everyone, my name is Ruvim And I am new to the real estate game. I am trying to avoid as much mistakes as I can and wanted to reach out to you guys for help.

    Is it better to go for a FHA loan for my first deal or go for a conventional loan?

    I don't have much money to start off with so I wanted to go the FHA route my buy box is around 250-300 k. but there are limitations with cash flow for the first year when buying a single family or duplex with FHA rules. I would have to get a triplex to get positive cash flow right from the start because of the 75% rental income that goes toward you qualifying for a loan


    With conventional loan the down payment is massive for my current buy box but the positive is that I don't have the limitations like FHA has. I can rent multiple rooms out for example if I buy a house for 300k that has 4 beds 4 baths I can rent each room for 1000+ a month and that's where I will get positive cash flow after all is said and done. If you have any insight on this I would love to learn from you 

    You can't use FHA financing as a way to purchase an investment property from the outset; HUD specifically prohibits FHA insurance when the transaction is designed to obtain an investment property.

    FHA's current rules say at least one borrower must occupy the home within 60 days of signing the mortgage/security instrument and intend to continue occupying it for at least one year.

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  • Ray WilliamsBusiness Member
    Lender · Denver, CO · Member since 2017 · 159 posts · 72 votes
    1mo

    Worth clarifying Ken's point above since it could read as ruling out what this whole thread has been about. FHA is specifically fine with 2 to 4 unit properties as long as you occupy one unit as your primary residence, moving in within 60 days of closing and staying at least a year, which is exactly the house hack structure you were asking about. What FHA does restrict is buying a property with no intention of ever occupying it, purely as a rental from day one, that's the "investment property" scenario Ken is describing. On your original question, the self sufficiency test only kicks in on 3 and 4 unit FHA purchases, not duplexes, so if you're leaning toward a duplex to keep things simpler, that test doesn't apply to you at all. It only requires the net rental income from the other units to cover a portion of the mortgage payment once you get to triplex or fourplex, which is the wall a lot of buyers run into. Given your buy box, I'd actually push you to run real numbers on a duplex with 5 percent down conventional against a 3.5 percent down FHA triplex, since the FHA route gets you more units and stronger rent coverage even though the self sufficiency math adds a hurdle. Both can work here. It really comes down to whichever property clears its own test.If the plan is to buy more than one home, I would start FHA then go to Conventional due to how they each will treat rental income on the NEXT acquisition.

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  • Josh Ray
    Real Estate Agent · Tampa Bay · Member since 2026 · 8 posts · 1 vote
    3w

    FHA - Occupancy: The property must be your primary residence; you cannot use an FHA loan for a vacation home or investment property. 

    https://www.fha.com/fha_loan_requirements

    If you intend to live in the property for a year then turn it into an investment property go with FHA. If not, your only option would be conventional for strictly an investment property.

     

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  • Hayden GrayPro Member
    Lender · Colorado / New Mexico · Member since 2024 · 30 posts · 8 votes
    3w

    Welcome, Ruvim! One thing I’d clarify is that lenders using 75% of the rental income is a qualifying calculation—it doesn’t limit how much rent or cash flow the property can actually produce.

    FHA can work well for an owner-occupied duplex, triplex, or fourplex. You can generally rent out the other units while living in one, although projected income from renting individual rooms may not automatically count toward qualifying. Triplexes and fourplexes also have some additional requirements.

    Conventional financing can sometimes be cheaper overall, but FHA may offer more flexibility depending on your financial profile. HomeReady is also worth asking about because eligible buyers may qualify for a conventional loan with 3% down on certain one-unit primary residences.

    I'd have a loan officer run FHA and conventional scenarios using an actual property so you can compare the cash needed, monthly payment, mortgage insurance, reserves, and projected rental income side by side.

    [email protected]505-482-0999
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