FHA and Conventional loan questions

[Ryan Saulle]

Hey BP members! I have a few questions.

I've been reading a lot, recently talked to a lender and I'm hearing mixed things.. I plan on buying a fixer upper multi-fam, living in one unit renting the other(s). I've read places that people used FHA loans many times and kept moving to new houses but I talked to a lender this week and he suggested maybe not using an FHA loan because you're restricted to what type of property you can use it on again in the future so I'm a little confused.

FHA - If i use an FHA loan, fix the property, live in it for a year while renting the other unit(s)..

-What happens if i decide to move out after the year? Can i rent out the unit i was living in and move somewhere else using another FHA loan or is there restriction on another FHA loan?

-Can i do a cash out refi after a year and make it a conventional loan?

-What happens if i decide to move after a year and sell the property?

-Would you suggest just using a conventional loan instead of an FHA loan?

Any help would be great..

Thank you!

[Andrew Postell]

@Ryan Saulle a little clarification here just in case it matters. There are several scenarios that could come into play based on what you described above. You can have 2 FHA loans at the same time as long as....

1. Your job transfers you out of the normal commuting area of your current FHA loan
2. Your family size changes and you need to move into another home with a FHA loan

While these are the FHA rules you might not have these options at every lender though. Lenders are allowed to not use these rules or be more strict on them. Smaller to mid-sized lenders will be the most flexible on these rules. The really large banks will be super strict with them.

One thing to keep in mind is that if you do take advantage of those scenarios above and do choose to take a 2nd FHA loan that you cannot use the rental income from the property you leave unless you have 25% equity in the property. A weird rule but that is an actual FHA rule.

Also, buying with an FHA loan is a great option because of the lower downpayment on the mortgage. FHA you can do 3.5% down on a multi-family while conventional will be 15% minimum. Big difference. So if you did want to refinance out of the FHA loan into a conventional loan you would need that same 15% equity...if you still lived there. If you move out and then refinance, you'll need more. Putting 3.5% down and then needing 15% to refinance is a pretty big jump.

*WHEW*  Lots of details.  Feel free to ask more questions here if you need.  Thanks!