FHA vs Conventional Pros/Cons and Curiosities/Questions

[Ryan Newport]

Hey guys, I got a few different questions and curiosities here, so I'm just going to lay them out and hope for as much insight as possible.

I have low capital right now, especially in my Connecticut market, this isn't the mid-west for me. But I can't stand to wait any longer to get into the investing game, so I've put my foot down and decided to contact some agents (whom I've found through BP) and find a multi-family around me that I can house-hack. Live in one unit and hopefully eliminate my expenses from renting out the other unit, or at least make my contribution of the monthly payments go towards principal, which is a huge win over my current $1600 rental payments I'm making right now going straight down the toilet. This will be my first home purchase.

My questions are regarding loan advantage and possibility for my circumstance and goals, specifically between FHA and Conventional (but please give me all things to consider when responding).

I have been thinking this whole time that my options were going to be limited to an FHA due to my unfortunate lack of capital. But in speaking with an investor friendly agent in my area, he told me its possible to obtain conventional with 5% down. First off, in terms of requirements and where to look for this 5% down conventional loan, what are we talking? I believe I've read that my rate would likely be much higher, though I do understand that the rate isn't the only thing affecting my monthly payment, as going with an FHA comes with other fees that often get rolled into the loan anyway to increase the payments.

In regards to FHA, with the closing costs and mortgage insurance that is charged, if/when a borrower is able to roll those costs into the loan, does this allow for a larger interest deduction come tax season? Just want to be aware for best possible considerations.

-- Lastly, does anyone have any insight on how lenders are currently treating individuals who have been out of work and have lower reported income due to covid? I was out of work for a while, but since have obtained new full-time employment and have been full time for 8 months, with no intentions on both employee/employer side of employment ending any time soon).And I guess, do these guidelines differ between FHA and conventional? -- The side note to this, is that if needed, I MAY be able to get a family figure to co-sign on something, and I'm also interested in hearing from others on the benefits that provides, if any really.

I know I've dropped a lot to talk about, and am looking forward to responses in all directions.

Thanks,

Ryan Newport.

[Jorden P Dupont]

 Hey Ryan! Welcome to the lovely state of "Tax!" I mean Connnecticut.

This may be off topic but I'm currently experiencing your same situation. Looking to buy my first property. My girlfriend and I are leaning towards single families or smaller multi's due to our limited down payment capital. We're trying to make our offers an appealing as possible however we're still getting outbid left and right. As @Michael Noto stated, sellers seem to turn their noses at FHA and USDA currently. Most sellers want a quick sale and don't want to deal with any of the quirks that come with government financing. Any decently priced property in CT is being swarmed with offers and you should expect a bidding war. You will have the most "buying power" with a conventional loan and you can go as low as 3%. If you're trying to compete your best bet will be with a conventional loan or cash offer.
I can put you in touch with the loan officer that I'm currently using. She's patient and has been amazing with explaining things to me. 

P.S My girlfriend was out of work for 8-9 months due to covid as well. At the time she has just picked up a part time job and had only been working at it for a few weeks when the pre-qual process started. The lender just asked a few questions about it and it didn't seem to delay or make the process any harder.

I know this didn't exactly answer your questions but I hopped this helped a little!

Feel free to reach out if you want to chat.