Advantages/Disadvantages of 5% conventional vs 3.5% FHA?

[Danny Ondik]

Hello,

I have heard that it is a good idea on your first deal to do a 5% conventional loan and then to do a 3.5% FHA loan on your 2nd property when you move in. What are the major advantages/disadvantages of doing your first deal with a 5% conventional loan vs a 3.5% FHA loan?

Thank you for any and all advice!

Danny Ondik

[Jared Bouzek]

@Danny Ondik This is really dependent on some details you haven't listed, but in general, the conventional option can have a lower payment if you take the lender-paid mortgage insurance option. Another advantage to the conventional if you do borrower-paid mortgage insurance is that it drops off after a period of time unlike FHA which will remain for the life of the loan at that down payment level. By the time you take the base FHA rate and factor in the MI, you're typically paying more for FHA.

If you're planning to acquire a second property with FHA, it can also become problematic to count rental income if you're moving in a relatively close area.