FHA vs conventional loan

[Account Closed]

Hi BP famiglia! 

I am a first time home buyer and looking to purchase a multi family home - live in one and rent out the other. Is it better to apply for FHA loan and put only 5-10% down vs conventional 20% fixed loan from say chase bank? Is it worth doing FHA even if have to pay a higher PMI? I really can't afford to put 20% down in the area I am looking so I am trying to explore a more affordable option. I figure by owning a multi family I could lower my monthly payments by collecting rent on the other unit. I was also told certain properties wont qualify for FHA loans due to restrictions.

My goal is to own multiple properties creating monthly cash flow.  Is this too risky for my first investment? Am I going about it in the wrong way? 

I have learned so much through BP and thank everyone in advance for providing their help and guidance. I will certainly pay it forward when I am a successful REI ;)

[Albert Bui]

Originally posted by @Account Closed:

Hi BP famiglia! 

I am a first time home buyer and looking to purchase a multi family home - live in one and rent out the other. Is it better to apply for FHA loan and put only 5-10% down vs conventional 20% fixed loan from say chase bank? Is it worth doing FHA even if have to pay a higher PMI? I really can't afford to put 20% down in the area I am looking so I am trying to explore a more affordable option. I figure by owning a multi family I could lower my monthly payments by collecting rent on the other unit. I was also told certain properties wont qualify for FHA loans due to restrictions.

My goal is to own multiple properties creating monthly cash flow.  Is this too risky for my first investment? Am I going about it in the wrong way? 

I have learned so much through BP and thank everyone in advance for providing their help and guidance. I will certainly pay it forward when I am a successful REI ;)

 HI Nick,

You can also use a MCM conventional loan if you qualify as a first time buyer for as low as 5% down on 2-4 units while typical conventional financing requires 25% not 20%, as 20% down on 3-4 units is a fallacy (maybe on 2 units but not 3-4 atleast with conventional).

If you dont want to put down 5% then use FHA financing. There is MI for life but only if you think of it for life because you can always refinance or payoff the loan with other means after you create, increase, or modify the property/asset value from your own repairs/sweat equity.

Is it risky? Sure if you dont know what you're doing, mis calculated the utilities costs, repair, vacancy, and other costs as they can add up really fast.

The good thing is atleast you might have 3 other units to help you offset your monthly obligations. If you plan it right you may be able to make money and live for free. 

FHA has health and safety requirements so you may have certain repairs the property may have to have prior to being eligible and there are self sufficiency rules with FHA that require the monthly rental to exceed the total monthly mortgage obligation as well. So go conventional or MCM if you want to avoid those areas.

There are pros and con's to each.