Loan advice for house hacking

[Josh B.]

What loan would you shoot for with the intent to house hack? And why?

I have about $20,000 to invest.

I've been leaning on FHA. I understand there is a PMI, which certainly adds up. I also understand, you must live there for a year before being able to legally move out.

What’re your opinions on first time home buyers loans? The thought having two loans kinda of intimidates me.

Anyway, which loan would help me optimize the house hack to its fullest with $20,000.

[Elise Marquette]

@Josh B. - Personally I think first-time homebuyer loans are mostly terrible. They're kind of difficult to qualify for because you can't make too much money and they often have a higher interest rate of 4.5%, which will really do a number on your cash flow. Since you'll be paying a higher interest rate, your monthly payment will be higher because more of your monthly payment is going toward the interest. additionally, these programs also tend to not be forgivable. This means that if you move or refinance before 5 years are up, you'll have to pay back the second mortgage. 

Going back to the mortgage insurance for FHA, it is on there for the life of the loan. It used to drop off if you put 10% down, but this is no longer the case. BUT- how long do you plan on keeping the property? If you keep it for the full 30 years and/or dumping a bunch of equity into it, then FHA may not be your best best. If you go conventional, you will have PMI until you hit 80% LTV. You can go anywhere from 3-5% down for conventional- it just depends how much you wish to keep in reserves and how much you want the loan amount to be. The loan amount will impact your monthly cash flow. Bigger loan amount = less cash flow but less immediate liquidity.

FHA is not any more paperwork than a conventional mortgage and it can be closed in 30 days. I've done a lot of FHA deals and have never run into the headaches that FHA used to have. All the documents are e-sign anyway, so it's just a matter of a few more mouse clicks. The appraisal can be more stringent, but that really depends on the appraiser.