House Hack Duplex - why is it a FHA loan and not conventional

[Tom Hastert]

Why is it always mentioned you househack using an FHA loan and not a conventional? FHA is usually a higher rate and upfront mortgage insurance premium, which needs to be refinanced off later requirement more closing costs when you do your second duplex house hack.

Is it because the one year requirement to live in the duplex?  Do conventional loans also have the one year live in rule requirement before you can move out and do your second house hack?

I tried finding lenders to explain my strategy, and the lender told me she would have to "convert my first loan back to an investor loan".  This sounds like she is going to call my loan due when I move out and do my second househack???

So can someone help me understand this and what do I do to make sure I am getting into this first one correctly with the right lender so I don't get into a snag a year later when I want to buy my second househack and move out of my first one and into the second one.

thanks

Tom

[John Teachout]

As alluded to above, the advantage of an FHA loan is cost of entry with 3.5% down. A conventional mortgage you would likely be looking at 20% or more. The long term money costs may actually be less in the long run with conventional if you can swing the down payment. It used to be that the pmi dropped off (or could be removed) from an FHA but with the new rules requiring it for the life of the loan, that makes it less attractive in my view. The FHA loans are guaranteed loans so institutions are happy to give them out, conventional loans require more scrutiny on their part. Money costs for a property are certainly worthy of a serious look as it can make the difference between cash flowing or not.