FHA loan (3.5% DP) vs Conventional loan (5% DP)

[Sarann K.]

Hi everyone,

I'm looking to buy a duplex as my first rental propertyand really want to rent both unit out while still living at my current apartment, but I just realized that I am going to hit a road bump. So if I use FHA loan, I will be required to stay in the house for at least 1 year before I can rent both out. On the other hand of the conventional loan, I will need to make 5% DP.

Here are my questions:

1.If I use the conventional loan, how easy would I be qualified for the 5% DP and would I be able to qualify for rehab loan as well? Are there any hidden requirements if I decide to use conventional loan?

2.Should I use FHA loan and live in one unit and rent the other out? However, I don't want to live in the property because the place is too big and it's not financial efficient for me to stay there.

Any comments would be really appreciated, thank you very much!

[Greg Enersen]

Hi Sarann,

While you will have to purchase the property as your primary residence to use an FHA loan, there is no requirement that you live there one year. You won't be able to use FHA financing on another property since you will have an FHA loan already in place, but there are no requirements as to how long you have to live there. As far as conventional financing goes, unless you qualify for the My Community Mortgage, you would be required to put more than 5% down (at least with my bank). Conventional financing also is affected by your credit much more than FHA is. It is also likely you will pay a higher interest rate on conventional. My opinion (for what it's worth) is that FHA is the way to go.

Good luck!