House Hacking and Paying Extra

[Isaac Passmore]

Is there any penalty for paying down a mortgage early? I'm trying to get started in DC and the down payments needed for a conventional loan is 20% however, for a standard duplex that's in the 140k-300k range. I'm not suggesting that any of those are good deals but that appears to be 20% of the asking price. 

Since this is my first deal I would like to have 30% of my cash reserves after closing since I don't know what to expect. In order to make this happen, I likely won't be able to reach that 20% down mark. This means I'll likely be subjected to PMI costs. (I don't know if I feel comfortable asking for outside money since I don't really know what I am doing yet and I'd feel absolutely awful if I couldn't come through for them)

My questions are, if I go the PMI route, is there any penalty for paying down a mortgage early? My thinking is pay extra each month in order to get out of that PMI condition sooner to help the property cash flow a bit better?

An additional motivation for doing this is that I plan on house hacking this first one. My plan is to find a place where the rent I'd be expected to get for that space would become my new rent. This new rent should be less than my current rent. My plan would be to continue paying my current rent towards the new mortgage while I live there until PMI is eliminated.

I know this answer will be different for each deal, but in general if a property already cash flows with PMI at the expected rental rates then getting rid of that PMI should be a priority to help increase cash flow sooner and allow me to pay less each month since there will be little motivation to pay extra.

How advisable is this to get started in DC?

[Russell Brazil]

Originally posted by @Andrew Buchwach:

@Ron Gallagher Appreciate you laying out that strategy, that seems feasible. Any recommendations for areas with duplexes? They seem to be few and far between in the DC Metro. H Street/Trinidad seems to be one option.

I've also been considering buying a home in Brookland, renting out the rooms and living in the basement. Have you tried that yourself?

Roughly 200 multifamily (2-4) unit properties sell per year in the metro area...thats out of about 90,000 home sales.  So yes they are rare.  The locations where they primarily exist are Trinidad, Kingman Park, Deanwood, Anacostia, Brookland, Petworth, Brightwood, and then some here and there through the city.