What are your experiences/opinions using a FHA Loan?

[Christian Solinski]

Hello BP,

What are your experiences/opinions about using a FHA loan over conventional financing? Which scenario is better, in your opinion: (1) waiting a couple years to come up with 10-20% for a down payment or (2) getting in right now with as little cash invested on my end?

My goal is to buy a duplex, triplex or fourplex using a FHA loan. Cash flow is very important; that said, at a minimum, I would like to live there for free. I have been having trouble figuring out Cash-on-Cash Return and Cash Flow with this extra level of complexity aside from conventional lending. There are all these additional costs with going the FHA loan route.

I have two main questions:

• Is Mortgage Insurance (MIP) determined by the down payment or is it fixed? If the down payment is higher, does that mean the MIP will tend to be lower?
• Will it be more difficult to find a duplex, triplex or fourplex using a FHA loan for financing if all the units have tenants in them, given the fact that FHA loan requires the owner to live in the property for a certain amount of time

Feel free to ask questions back in order to help me better understand the process and benefits/drawbacks...

Thanks Y'all!

[Jaysen Medhurst]

@Christian Solinski, assuming it's the right deal, taking action sooner, rather than later, is probably the best avenue. I'm not sure what "extra level of complexity" you're referring to. FHA loans do require PMI (for the duration of the loan, BTW), but that's simply another part of your debt service calculations. What other additional costs do you mean?

Regarding your specific questions:

1. PMI is determined by a percentage of the loan amount. This percentage can vary a bit lender to lender. I'm not sure if there is a fixed range for FHA or not.
2. It will not be more difficult to find a multi-family. You just have to be able to move in within 60 days of close. This can be achieved in a few ways. The easiest is to write in the purchase agreement that a certain unit must be delivered empty. Then it's the seller's problem. Remember, when you buy a property you have to honor any existing leases.