No, conventional isn't possible here, because a conventional mortgage on a multi family property requires 25% down. That's 90 grand I don't have. FHA owner occupied is the only way to do this deal.

I would ride it out then and watch the appreciation of the property. As soon as you cross that 25% threshold start looking into a conventional mortgage if rates are still competitive with what you currently have.

As long as you have strong cash flow on the property you should be fine.

The downside is I don't think it's going to appreciate. Well, it might, but I'm not counting on it by any means. I'm paying the seller what they put into it. It's a good income-producing property, cash flowing about $700/month even with PMi. But I think I'm also buying it at full price (FHA is picky about repairs anyways, will not pass an appraisal for chipped paint).

Alright time to break this out with actual numbers.

Current situation

Purchase price: $360k, 3.5% down

Mortgage remaining: $347,400

Interest rate: 4% @ 30 year fixed

PMI: 0.85 ($246/month)

Total monthly payment(P,I,+PMI) = 1907

Conventional Option 1 @ 4%

Assessed value: $360k,

Mortgage remaining: $270,000 (Bring 77k to closing in order to hit 75% LTV and drop PMI)

Interest rate: 4% @ 30 year fixed

PMI: None

Total monthly payment(P,I,+PMI) = 1298

Conventional Option 2 @ 4.25%

Assessed value: $360k,

Mortgage remaining: $270,000 (Bring 77k to closing in order to hit 75% LTV and drop PMI)

Interest rate: 4.25% @ 30 year fixed

PMI: None

Total monthly payment(P,I,+PMI) = 1328

Conventional Option 3 @ 4.5%

Assessed value: $360k,

Mortgage remaining: $270,000 (Bring 77k to closing in order to hit 75% LTV and drop PMI)

Interest rate: 4.5% @ 30 year fixed

PMI: None

Total monthly payment(P,I,+PMI) = 1368

Option 1 = 7,308 yearly cash flow increase on 77,000 "investment" = 9.49% yearly return on investment

Option 2 = 6,948 yearly cash flow increase on 77,000 "investment" = 9.02% yearly return on investment

Option 3 = 6,468 yearly cash flow increase on 77,000 "investment" = 8.4% yearly return on investment

Depending on the rates in the future you could increase your cash flow and ROI drastically by throwing 77k in and refinancing.

I would start investing money in taxable accounts and then re-assess the situation in a couple years. But a guaranteed return of 9.5% on 77k is nice, assuming I did the math right.