All Forum Posts by: Cameron McCown

@David Arshakyan I'm guessing you're a buy-and-hold investor.  If you had $40,000 I would suggest putting 20% down on $200,000 vs. 30% on a $133,000 house for a bunch of different reasons.  

First, cash will come in handy for repairs and reserves. 
Second, think of the kind of tenant you will get in a house that appraises for $200,000 vs. one that appraises for $133,000.  Depending on the area, you may be choosing between 3 bedroom and 2 bedroom.  You may be choosing between 1 income producer and 2 within the household.
Third, if both of those properties appreciates 2% per year for the next 5 years, you realize $20,816 on resale in the latter example and $13,877 in the first.  You've put the same amount of money down, but you get around $7,000 more at the end.
Fourth, rates will be lower on a higher loan amount than a lower one.

There are all kinds of reasons to put 20% down instead of 30%.  Maybe this starts to give you an idea why.  Peace.

@David Arshakyan I'm guessing you're a buy-and-hold investor.  If you had $40,000 I would suggest putting 20% down on $200,000 vs. 30% on a $133,000 house for a bunch of different reasons.

@Jose L Torres, Great question! There is an up-front portion of PMI on an FHA loan, and there is an annual portion. The annual portion is paid monthly by you. The up-front portion can be paid in cash, or it can be financed into the home. Most people finance it. I would obviously advocate not paying either and just going with a Conventional loan 5% down instead, because you save that 1.75% of the loan amount in fees to do so.

So every year, you don't write a check for the PMI insurance; it becomes part of your monthly payment. You are then stuck with this higher monthly payment over the life of the loan.

@Marylin OShea Most people refinance out of an FHA loan well before the 80% mark. Again- if you have 10% equity in the house, you can go Conventional and reduce the PMI. Or 5% or 7% or 15%. You don't have to wait until 20%. There are costs involved, and you really have to look at where those costs break even with the payment relief. That's just a mathematical analysis. I am licensed in MD and will allow less than 20% down on a Conventional loan for a house hack/owner occupant.

@Jessie Snell, What is the original loan balance for your current VA loan? This will help.

Brian is correct about the cash-out refinance to pay off the private lender.  Most banks will not let you get a home equity loan unless you occupy it.

So many times, I hear investors propose an "FHA" option as the best option for financing a new multi-family they will house hack or new primary residence for themselves.

I can't say how wrong this is. It's true that the FHA will allow a 3.5% down payment. But it is also true that a Conventional loan can be obtained for just 5% down. And the difference? 1.75% of the loan amount in up-front mortgage insurance + approximately .05% in additional mortgage insurance per year.

So let's take an example. $110,000 purchase price with a $3,850 down with the FHA or a $5,500 down on Conventional. PMI with the FHA will be $75.18/month + $1,857.63 up front. PMI with Conventional will be $34.93/month to $104.92/month, depending on credit. We'll use the average of $70.09.

Over 1 year, you will pay $2,759.79 to acquire that loan through the FHA. On a Conventional loan, it will be $841.08. You've put $1,650 less down, and it's cost you $1,918.71 to do it, plus another $61.08/year after that.  

You have now lost -$268.71 on your minimum down purchase, just because you chose FHA vs Conventional.

And other thing- with most FHA loans, the mortgage insurance NEVER GOES AWAY. On a Conventional loan, it will go away once you owe 78% of the original appraised value.

So this is why I would never suggest a house hacker get into an FHA loan vs. a Conventional loan. It doesn't make sense. And it doesn't make cents...see what I did there? ;)

Take care.

@Bleau Deckerd Welcome to the area!  A lot of great opportunities in St. Louis.

@Lara Taylor, The bank I work for does these.  I'm not sure what the limitations are on advertising here, if we're literally just answering the question and the occupation is the answer.  Message me, and I'll give you more info.

@Frank Patalano, I have enough money to invest, and I'm not sure where I want to invest it. We were under contract for about a week on a SFR we were paying $16k cash for and would likely put another $15k into. It would likely rent out on a government program for $800/month, and it was in one of the worst areas of our city. The occupant has to participate financially, and it's our responsibility to collect it. Neither of us was comfortable, and we didn't know how long it would really take to rent. Ultimately, we let the deal fall through on inspection contingency.

Now, we're looking at maybe a duplex in the $400,000 range.  We'd finance some, but it would provide us a steady income.  We could also buy two $200,000 duplexes or 1-4 $100,000 SFRs.  Do you see?  I could probably make it work no matter which route I went; I just am held back by the understanding that once I spend money, I won't be able to spend money again for a good while (buy and hold), or even worse take a haircut because I don't want to be in a situation that I got myself into.  There are too many options atm, I think.