@Sara Weber I've done two house hacks on two duplexes so far and my experience and learning has been to stick with conventional if all possible. In my area it was the option of the 3.5% FHA or the 5% conventional. Granted there is an extra 1.5% on the conventional, but the FHA has so many 'hidden' costs that make such a large difference.
1) Conventional loans (at least in my situation) - they will drop PMI payments once I hit 24 successful payments (2 years). Within FHA loans, those MIP payments are essentially permanent until the loan is refinance (which depending rates could be a wild card).
2) In FHA, you also have the additional fees (UFMIP) which is 1.75% of purchase that gets lumped into your loan. Its amortized over 30 years - still ultimately make your total down payment much higher. (don't believe UFMIP counts as equity either - just a tacked on fee - I could be wrong)
3) Can only have one active FHA loan at once, can pretty much have as many conventional loans as your DTI allows. So you'd have to refinance the FHA into conventional before opening up another FHA loan. You may get hit with a seasoning requirement on the refinance that keeps you at first place there longer.
4) FHA I believe requires inspections and to hit certain requirements, where conventional it can be waived. I would still recommend an inspection of course but inspection contingencies can be 'turn offs' to sellers in hot markets.
To me (and id like to hear others opinions) - the only real benefits to FHA is if you are rebuilding credit or cant obtain that extra 1.5% down (maybe high priced market). When we did our cost analysis on our first place, it was like an extra $3000 up front vs $40k+ on the backend of a $200k note. But like I said, you're going to refi prior so it definitely wouldn't get that full $40k+ but who knows what the fed will do with rates in this economy.
