Choosing to purchase a duplex or other multi-family property can help you get on the road to financial independence. Whether you’re a first-time home buyer or you already have real estate, investing in a multi-family building can increase your home’s value, generate additional cash flow, and provide passive income. FHA financing or conventional financing are both options for purchasing duplexes. Each choice has a unique set of conditions and advantages.
A duplex is a residential building with two units, to put it simply. Residential property with four or more units is referred to as a multi-family property. You must reside in one of the units as the owner-occupant in order to be approved for FHA financing. This applies to duplexes, triplexes, and multi-family buildings with no more than four units.
Recall that if a multifamily property has five units or more, it qualifies as commercial property. Obtaining financing for commercial real estate involves a unique procedure and a number of requirements.
Top 3 Mortgage Options to Buy a Duplex or Multi-Family Property
FHA loans are government-backed home loans. When purchasing a duplex, you must reside in one of the units to be approved. You can qualify if you live in one of the units because it counts as your primary residence, and you can use rental income to do so. When purchasing a home for the first time or with little money down, FHA financing is frequently the best option. There are fewer requirements, lower closing costs, and down payments as low as three percent for FHA loans. 5%.
If you have excellent credit and intend to put down a sizable amount of money, conventional loans are your best bet. Since conventional mortgages are provided by private lenders (banks, credit unions, and mortgage lenders), getting approved for one gives you more flexibility. A conventional mortgage can be used to purchase a duplex or other multi-unit building. Generally speaking, if you have excellent credit and intend to put down a sizable amount of money, a conventional mortgage might be your best bet.
If you meet the requirements, VA loans have several benefits, including no minimum credit score, no down payment, and no private mortgage insurance (PMI). You must be one of the following to be qualified for a VA loan with 100% financing when you purchase a duplex:
Start your application in less than 5 minutes.
Declare whether the property is your primary residence, a second home, or an investment property when you apply for a mortgage. Declaring a duplex as your primary residence when you purchase it as an investment property will therefore provide you with the best mortgage options and the most affordable mortgage rates.
By residing in one of the units, you can claim owner-occupant status and benefit from a principal residence mortgage.
There is no requirement that you reside on the property if you choose a conventional mortgage. However, if you want FHA financing, you have to live in one of the apartments. Additionally, when you declare your property as your primary residence, there are several discounts, low down-payment options, and other benefits, which we blogged about here.
Can I use the FHA 203K loan to buy a duplex that needs work?
You can purchase a duplex that needs a lot of work with an FHA 203k loan and manage the repairs with one mortgage. The 203k finances the entire project with a single mortgage by combining the purchase price of the home and all renovation costs. With an FHA 203k mortgage, the purchase price and all renovations are covered by the loan, allowing you to spread the cost of the renovations over the loan’s term. One mortgage, one monthly payment. There are many advantages and a few limitations, which we covered in this blog post.
What credit score do I need to buy a duplex?
When you know what to anticipate, purchasing a duplex or fourplex as an investment property can be much less stressful. Mortgage lenders assess your risk based on your credit report and debt-to-income ratio, which has an impact on the conditions of your loan offer.
Conventional mortgages typically require a credit score above 700, though mortgage lenders have flexibility. FHA financing requires a credit score above 580. Find out your credit score by downloading your free credit report. You can fix any errors, dispute negative marks, and take action to boost your credit score in less than 60 days, which we blogged about here.
A high credit score will assist you in obtaining the best mortgage rates. Additionally, there are special loan programs available for buyers of duplexes and other multi-unit properties.
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When you’re prepared to purchase a duplex or other multi-family property, we can help you navigate the process and find the most advantageous financing. Depending on your goals for homeownership, there are a variety of loan options and benefits available. Connect with a local mortgage advisor to get started. We’d love to help.
FAQ
How does FHA define duplex?
A duplex is a residential building with two units, to put it simply. Residential property with four or more units is referred to as a multi-family property. You must reside in one of the units as the owner-occupant in order to be approved for FHA financing. This applies to duplexes, triplexes, and multi-family buildings with no more than four units.
Is it harder to finance a duplex?
Compared to single-family homes, multi-unit properties have higher loan limits. If you were to rent out both units, you would earn more money from rentals. You’ll build equity. Compared to a single-family home, selling a duplex could be more difficult.
What can you not buy with an FHA loan?
- Fixer-Uppers, “REO Homes” and Foreclosed Homes. …
- Tiny Houses. …
- FHA Loans for Multi-Unit Homes. …
- Mixed-Zoning / Mixed-Use Properties. …
- Manufactured Homes. …
- Housing Types That May Not Be Approved.
Can you use FHA to buy multifamily?
Obtaining a multifamily property with an FHA loan Qualified buyers can buy a multifamily property for as little as 3.5% down. Use the rental income to help you qualify with a 5% down payment (conventional guidelines usually call for at least a 15% down payment for multifamily purchases).