Mortgage Down Payment

[Robert Stamper]

Hi all, 

I'm advising a young couple that is 1) buying their first home and 2) interested in building a real estate portfolio of SF rental homes. I know they can get a first time buyer mortgage at 3.5% via the FHA program but I have a couple of questions

1) If they get an FHA loan with 3.5% down, will they have to pay PMI?

2) A year from now, I am advising them to rent that first SF home and go get another home as their primary home due to better financing you can get on primary homes  They should do this every year for 10 years.  I wish someone had given me that advice 25 years ago :)  What terms can they expect when they buy the second home as a primary residence?   Will they have to put down 20% or can they put down less?

Thanks!

Robby

[Adrienne Green]

Hi @Robert Stamper! Like you, I wish I was given advice about REI when I first bought a house.

Re: #1: Can they qualify for a conventional mortgage instead of an FHA? My go-to lender tries to get FTHs into conventional mortgages if their credit is good enough because then the PMI will drop off at 80% LTV instead of staying on for the life of the loan, like it will with FHA.

Normally the PMI issue is a non-issue because FTHs will sell or refinance prior to hitting 80% LTV, but if they're planning on keeping it as an investment, and with interest rates so low right now, they may keep the loan for a long time.

There are conventional loan programs for FTHs that allow purchase with 3.5% or 5% down, depends on what program they qualify for based on their credit.

Re: #2: I am not a lender, but from my personal experience I would expect 10% down to be an option, at least for their second home purchase.

I'd recommend finding a solid lender in your area, and run these questions by him/her. Where are you located? I have a great lender for the mid-Atlantic region. Reach out if that would help you!