The first decision in any house hack: which loan to use. FHA gets you in at 3.5% down — the lowest barrier to entry in all of real estate. Conventional costs more upfront but cleaner long-term economics. Run the math on both before locking yourself in.
Use FHA when 3.5% down is the difference between buying and not buying — and plan to refinance to conventional in 2-4 years once you have 20% equity. Use conventional from day one if you have 5%+ to put down and want to avoid lifetime mortgage insurance. The crossover point is around 6-9% down payment for most buyers.
FHA and Conventional measure different things.
| FHA | Conventional | |
|---|---|---|
| Minimum down (1-4 units, owner-occupied) | 3.5% | 5% (SFR), 15% (2-4 units) |
| Credit score minimum | 580 (3.5% down), 500 (10% down) | 620 typical, 680+ for best rates |
| Mortgage insurance | Upfront MIP 1.75% + Annual ~0.55-0.85% | PMI ~0.5-1.5%, removable at 80% LTV |
| MI duration | Life of loan (most cases) | Until 20-22% equity, then auto-removes |
| Rental income for qualifying | Yes — 75% of projected rents counted | Yes — 75% of projected rents counted |
| Owner-occupancy requirement | 12 months minimum | 12 months minimum (most lenders) |
| Property condition standards | Strict (FHA appraisal flags safety, lead paint, peeling) | Looser — standard market appraisal |
| Max one at a time? | Yes (mostly) | No — multiple conventional allowed |
Buying a $500k duplex, both as owner-occupied. Let's run the 5-year monthly cost side by side.
FHA scenario:
Conventional scenario (15% down):
The tradeoff: FHA saves you $57,500 in cash to close. Conventional saves you $430/mo in monthly payment ($25,800 over 5 years, $43,000 over 10 if PMI drops at year 4).
The crossover: The conventional saves money over time, but only if you have the $57,500 to put down. For a buyer who can stretch to 15% down, conventional usually wins long-term. For a buyer who only has $20-30k, FHA is the only way the deal happens — and that beats not buying at all.
Critical difference: FHA MIP issued after June 2013 is for the life of the loan (unless you put 10%+ down, in which case it cancels after 11 years). The only way out is to refinance to a conventional loan. Plan for FHA → conventional refi at year 3-5 once you have 20% equity through paydown + appreciation.
FHA appraisers are also condition inspectors. They flag peeling paint, missing handrails, lack of GFCI outlets near water, broken windows, exposed wiring. Items must be repaired before close. Many distressed properties fail FHA — making them harder to house hack. If the deal you want is a fixer, conventional or 203(k) renovation loan is usually the play.
Both FHA and conventional let you use 75% of projected rents from the non-occupied units to help qualify. This is a major benefit for both — it's not unique to FHA. The difference is that FHA's overall DTI limits are slightly more forgiving (up to 50-55% DTI vs ~45-50% for conventional).
Most borrowers can only have one FHA loan outstanding. Buy a duplex with FHA, live there 12 months, want to buy another duplex with FHA? Generally you have to refinance the first one to conventional first. This kills the 'stack FHA forever' strategy. Plan around it.