House Hack: FHA or Low-Down Conventional

[Steven Young]

Hey guys, quick question for you. I have been planning to house hack a small multi-family for quite some time now, and have a question about strategic financing.

My question is: If I only plan to live in the property one year before moving into another small multi using another low-down payment loan, are there any advantages to going with the FHA or Conventional that would be important to consider? My plan is to buy a new property and house hack it for a year, for the next 5 years (obtaining 5 properties). What I don't want to do is end up in a situation where I can't finance the next ones because I made a silly mistake from the get-go.

Thanks in advance!

[Jim D.]

The low down payment conventional you can use for an owner occupied purchase is called “HomePossible“. It’s generally 5% down and covers 2-4 unit properties if you live in one unit. To qualify, you must be a first time homebuyer and earn less than around $60k/year (that’s number varies by location). 

This loan is better than FHA because the mortgage insurance is lower, and can be dropped when you reach 80% equity. With FHA loans, the mortgage insurance is higher and will remain for the life of the loan.

If you are married, best route for your plan would be to use a HomePossible, then FHA, then have your spouse do a HomePossible, then FHA. Of course, that all depends on whether you qualify but that's the ideal route. If you're married, don't put your spouse on title or the loan so that they can also use a first time buyer loan in the future!

Good luck!