Does this plan make sense?

[Sagar J.]

I have been reading couple of books, forum threads and have listened to few podcasts, still long way to go. But based on the information I have gathered so far here is what I am thinking how to enter in this world and looking for advice/feedback if this make sense:

We have a primary and only home that we bought through FHA few years back. Thanks to appreciation home equity is now 20-25% and Community wise it's in one of the best school districts with all 3 schools rated 8+.

As I don't have enough capital to put down 25-30%, I am thinking of converting primary residence to rental and buy another one with FHA loan in same school district as primary and kind of repeat the process every few years. Since first house is already appreciated with more than 20% equity I can refinance to traditional if two FHA loans are not allowed

Logic for thinking FHA for new primary is 3.5% Down payment and I believe it's the only loan that may consider rental or potential rental from first home as income.

Can you help and poke holes in my logic or tell me if I am missing something 

[David M.]

@Sagar J.

Yeah, sounds mostly good. Yes, refi your current loan on your house. Get a good lender to figure out the right loan product. Conventional loans usually go down as far as 5%, but to avoid PMI you do 20%. Remember, a non-govt backed loan allows for the PMI to come off without refi.

Talking about the correct loan product, really the direction to go convectional or FHA generally depends on your credit score. With a better credit score, the conventional loan will be cheaper. At 5% (sometimes 3%) down, it can be better to use a convectional loan. But, this is all dependant on your personal finances.

Meanwhile, both loan products (well, and conforming loan with less than 20% down) required owner occupancy.  So, I think you are doing that.  Any of the loans allow for rentals.

I hope that helps.  Good luck.