First multi-family: to go FHA or conventional?

[Evan St. George]

Hi everyone,

I'd welcome advice/input on this situation, if anyone is willing. My wife and I are in the process of finalizing an agreement for a 3-family home (our first) in upstate NY (Rochester area). Based on conversations with a couple lenders and a mortgage broker so far, we haven't been pulled strongly toward either an FHA or Conventional Mortgage. We have the money to put 20-25% down on the property, but that would be $80-100K and would chew up a good chunk of our investable cash. Because it's our first foray into ownership (and being landlords), I want us to have a cash cushion of some kind if we run into unforeseen expenses early on. More than that, I'd like to use some leverage when possible, leaving additional capital for other potential investments down the line.

Because we will be relocating from out of state, our pre-approval was based on it being a 25% down Investment Property (i.e. NOT owner occupied), but our intention is very much to owner-occupy. The Investment loan would carry a 5.5% interest rate, at least a full percent higher than if we went conventional or FHA with it as our primary residence. A Mortgage Broker has told us he could get us a rate under 4% on an FHA Loan with 10% down.

Currently working on securing NY jobs and/or an agreement from my employer that I can work remotely. Setting that aside, do people feel like there's a clear winner between the two: (1) FHA with 5-10% down, leaving us more free cash but a higher monthly pmt; or (2) putting 20-25% down with a conventional (or Investment) which would lower our monthly payment and avoid PMI, but tie up a lot more cash up front?

Appreciate the feedback as we begin/continue along with this process.