question about buying and living in it

[Tyler Helton]

someone described a strategy to me where you'd buy a duplex with an FHA loan, rent out half, live in half for either a year or two years I can't remember, then buy another one and do the same thing... is it a necessity to live in it for a length of time, and why? and in what circumstances would you just buy without living in it?

[Travis Hughes]

@Tyler Helton I would also point out that there is a difference in the mortgage products that you can obtain as an owner-occupant compared to an investor.  As @Reggie Wright pointed out, it is necessary to live in the home for a minimum amount of time.  This is if you are purchasing the duplex as an owner-occupant.  The reason that you might want to do this is because you can put a lower down payment on the table, and because the interest rate is likely to be lower.

As an investor, most lenders will require 20% - 25% down payment minimum, and the interest rate will be about 0.75% - 1.00% higher. As an owner occupant, you can put a much smaller down payment - as little as 3.5% with FHA I believe. An owner occupant also gets a lower interest rate. The tradeoff is that you have to live there for a minimum amount of time.

As always, consult your mortgage broker for the best options. For example, I would never want to own a home with less than 5% equity, so the 3.5% down payment FHA option isn't important to me. Also, if I am not mistaken, an FHA loan has permanent PMI (can't be removed), whereas conventional with minimum 5% down payment the PMI will be removed at 20% equity.