Voorhees, NJ · Member since 2015 · 11 posts · 4 votes
Im looking to buy a home with the intention of making it an investment property after a year or so. in south jersey I have the money for a down payment and rehab costs. However should i take advantage of the FHA loan and keep the cash that would have went towards the down payment and refinance after a year?
Flipper/Rehabber · Leominster, MA · Member since 2020 · 667 posts · 384 votes
6y
Tyler, if I could start all over, I would have bought a 3 family with an FHA loan as my first property. You can do it low money down, be cash positive on your first property - owner occupy and use the cash to do another deal; this approach would have maximized my leverage & been the most efficient use of my money.
Flipper/Rehabber · Leominster, MA · Member since 2020 · 667 posts · 384 votes
6y
Tyler, if I could start all over, I would have bought a 3 family with an FHA loan as my first property. You can do it low money down, be cash positive on your first property - owner occupy and use the cash to do another deal; this approach would have maximized my leverage & been the most efficient use of my money.
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
6y
Have your lender run out the numbers for you both ways.
I'd say normally people use FHA if they don't have the credit or the down payment.....in other words they're forced to use FHA, they don't have the option of conventional.
I'd think if you have the option you would want to go conventional.
Investor · Allentown, PA · Member since 2019 · 43 posts · 24 votes
6y
Hard to know for sure without more context, but here's a couple of my thoughts since I'm in a similar situation of debating whether to use FHA or conventional for my first property:
You said you are thinking about taking advantage of FHA low down payment and refinancing after a year. Unless you can create 25% equity through the rehab, you will likely have to bring cash to the table to refinance to conventional after a year.
One good reason it might be a good idea to use conventional instead of FHA are that it gives you the flexibility to use FHA on a future property, since you can only have one FHA loan at a time. There are also FHA restrictions to make sure people don't take advantage of the program to acquire a ton of investment properties. So you probably wouldn't be able to just buy a property, house-hack it for a while, then refi, move into another one, and repeat the process (although this would be great). However, if you are moving across the country, or have other legitimate reasons for moving and can prove this, I believe you would be able to repeat. Also no PMI.
However, FHA gives you the option of dipping your feet in the water as far as being a landlord, and will allow you to create some systems, probably make some mistakes, and then have cash on hand to take these lessons learned and invest into a better deal.
I'm also from SJ so feel free to give me a shout if you want to chat!