First rental w/o FHA?

Question

Would it be a bad idea to get your first rental property without an FHA and just put a 10 or 20% down payment? I really like the idea of 3.5% but wouldn't want to be living there myself for a year. I just don't know the smartest route people take? Assume I had the choice to decide.

G. Brian Davis · Answer

Hi @Mohammad Haidarasl,

There's nothing wrong with going conventional on your first deal. House hacking is a great way to get your first property, but it's certainly not the only way.

If you have the 20% down, and the cash-on-cash ROI and the monthly cash flow both make sense, you'll be in good shape. You'll also avoid PMI, which is awesome.

Feel free to PM me any time, and best of luck!

Brian Phelt · Answer

There's no problem with using conventional financing to secure an investment property.  The majority of people who buy rentals do this.   Let me know if you would like to speak with a lender to help you answer any questions you may have.

Alex Capozzolo · Answer

@Mohammad Haidarasl FHA is a great and inexpensive way to get into your first rental, but does come with the catch of living there for a year. Comparing it to a conventional 20% downpayment loan, FHA requires MIP (mortgage insurance) until the loan's LTV reaches ~80% (meaning you have paid down 20% of your mortgage). So that is an additional cost that you must factor in to your overall monthly expenses when calculating potential cashflow for a property you plan to purchase via FHA. Also, your strategy depends on how your current cash situation and if you want to tie some / most / all of your capital into one spot, or try to spread it out! I hear great things about San Antonio, hope the market is treating you well down there !