fha loan for a duplex

Getting an FHA Loan to Buy a Duplex – A Complete Guide

Purchasing a duplex with an FHA loan can be a great way for first-time homebuyers to enter the real estate market. An FHA duplex loan allows you to live in one unit while renting out the other, helping to offset your mortgage payment. In this comprehensive guide, we’ll walk through everything you need to know about getting an FHA mortgage for a duplex property.

What is an FHA Loan?

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration Key features include

• Low down payment of just 3.5%
• More flexible credit requirements with minimum 580 FICO score
• Low mortgage insurance premiums
• No income limits

FHA loans help make homeownership accessible for more buyers. And you can use an FHA loan to purchase a duplex, triplex, or fourplex property.

FHA Loan Requirements for a Duplex

The eligibility criteria for an FHA duplex mortgage are similar to a regular FHA loan for a single-family home. Here are the key requirements:

• Minimum credit score of 580
• Total debt-to-income ratio below 55%
• At least one borrower must occupy one unit as their primary residence
• Property must meet FHA minimum quality standards
• Loan-to-value ratio up to 96.5% of appraised value

In addition, you’ll need a down payment of at least 3.5%. This can come from your own funds, gifts, grants, or other eligible sources.

There are no income limits to qualify for FHA. As long as you meet the credit score, DTI, and down payment requirements, your income level does not matter.

Using Rental Income to Qualify

A major benefit of an FHA duplex loan is that you can use projected rental income from the other unit to help you qualify.

FHA allows you to use 75% of the property’s fair market rent determined by the appraisal. You don’t need a history of rental income or previous landlord experience.

This rental income can help you qualify if your personal income alone is not quite enough. Just make sure you can still afford the full monthly payment in case you have trouble renting out the other unit at first.

Occupancy Requirements

With an FHA duplex mortgage, at least one borrower must live in one of the units as their primary residence for at least 12 months.

You cannot purchase the duplex only as an investment property and rent out both halves from day one. But after living there for a year, you can move out and rent both sides.

Many homeowners “house hack” with an FHA duplex loan. They live on one side to meet the occupancy rule but rent the other side to help pay their housing costs.

After a year, they have the flexibility to move and rent out the entire property as an investment. This allows you to get started investing in real estate without buying a separate rental property.

Duplex Loan Limits

FHA sets maximum “conforming” loan limits based on the number of units:

• 1 unit: $496,450 (2022 limits)
• 2 units: $632,450
• 3 units: $760,900
• 4 units: $947,600

Loan limits are higher for duplex and triplex properties to reflect their higher values. Actual FHA loan limits do vary by state and county across the U.S. You can look up the specific limits in your area using the FHA mortgage limits lookup tool.

In high-cost areas like New York or San Francisco, FHA loan limits for 2-4 unit buildings can reach up to $1,472,550.

Buying Process for FHA Duplex Mortgages

The process of getting an FHA loan for a duplex or triplex property follows similar steps as buying any home:

• Get pre-approved to see your estimated loan amount and payments. Shop for duplexes within your budget.

• Make an offer once you find the right property. Submit your purchase contract to your lender.

• The lender will order an appraisal to confirm the value and condition of the duplex.

• You’ll provide documents to verify your income, assets, and overall financial picture.

• After underwriting reviews and approves your loan, you can close on your new duplex!

Your lender will help guide you through every step of the process. Be sure to work with an FHA-approved lender experienced with duplex financing.

Pros and Cons of an FHA Duplex Mortgage

Let’s summarize the main advantages and disadvantages of buying a duplex with an FHA loan:

Pros:

• Low 3.5% down payment
• Use rental income without previous landlord experience
• Live in one unit while renting the other
• Flexibility to move out and rent entire duplex later
• Higher loan limits than single-family FHA mortgages

Cons:

• Must live in one unit for at least 12 months
• Monthly payments may be higher than a single-family home
• Pre-approval may take longer with extra income documentation
• Being a new landlord involves a learning curve

Overall, an FHA duplex mortgage can be a great option if you want to become a homeowner and real estate investor at the same time.

Alternatives to an FHA Duplex Loan

While FHA is a popular financing choice, here are a few other options for buying a small multifamily property:

Conventional loan – You can buy a duplex with as little as 5% down with a conventional mortgage. No occupancy requirement.

VA loan – Qualified veterans can purchase a duplex with 0% down through a VA loan. Must occupy one unit.

USDA loan – For properties located in rural areas, USDA offers 100% financing for duplexes.

portfolio loan – Some banks offer portfolio mortgages for a duplex with flexible terms. Higher down payment often required.

Check if you Pre-Qualify for an FHA Loan

Buying a duplex with an FHA loan provides a unique opportunity to invest in real estate as a first-time buyer. See if you may qualify for an FHA mortgage and what payment amounts you can afford.

Getting pre-qualified involves a soft credit check that won’t impact your scores. But it will let you know your estimated rate, loan amount, and monthly payments.

Then you can confidently start the search for your perfect duplex property. Act now to take advantage of today’s low mortgage rates and get the full benefits of homeownership.