How to buy a duplex or a multi-family property

There are different loan options for your multi-family home

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Homeownership is a dream for many people. While a single-family home is more common, buying a multi-family home or duplex is also an option. It allows the homeowner to have a primary residence and potentially generate rental income simultaneously. And much like buying a single-family home, you might need a loan to finance the purchase.

Read on to learn about financing options if you’re considering one of these types of properties.

Key insights:

  • Potential homeowners have access to three different types of loans when financing a multi-family property, each with its own requirements.
  • There are different types of multi-family homes, each with its own maximum loan limit.
  • Only owners who live in the property can qualify for a VA or FHA loan.

Multi-family home vs. duplex

A duplex is a type of multi-family home — but not the only type. A duplex is a single lot that has two units joined by a wall. A multi-family home is any lot with a property that contains four or fewer units, including a quadruplex and triplex. If more than four units exist on the property, the property becomes a commercial apartment rather than a residential home.

It is also important to distinguish a duplex from a twin home. Like a duplex, a twin home is a structure that shares a wall with another home. However, twin homes are two individual properties and two individual lots.

Owner-occupied vs. investor financing

If you intend to live in the home, you may qualify for an owner-occupant mortgage. However, if you simply intend to invest in the home and hold it as a landlord, you would have to settle for conventional routes of financing. As an investor, you’d also need to put down a larger down payment on the home — at least 20% — and possibly more to get the best rates. Leaders will charge a higher rate because of the higher rate of default of investors, as opposed to owner-occupants.

Given that FHA and VA loans are not available to investor-owners, some investors take out second mortgages to fund the purchase. However, this can be risky and requires careful consideration before any final decision.

Loan options

There are a number of loan options that potential homebuyers have available to them, each with its own pros and cons. Each type of loan has its own parameters and requirements, and some are exclusive to particular populations. Read on to see what type of loan you may be eligible for, and which might be best for your needs.

Conventional loan

Conventional loans are not backed by any government agency. However, government-sponsored entities such as Fannie Mae and Freddie Mac set conforming rules for conventional loans that they back. Because these loans are not backed by a government agency, they have stricter requirements than other types of loans.

FHA loan

A Federal Housing Administration (FHA) loan is a type of loan that makes homeownership a realistic possibility for low-income buyers who would struggle to get approved for a conventional loan. FHA loans can require down payments as low as 3.5% and a credit score as low as 500, and have lower closing costs than conventional homes. These loans are backed by the federal government but are issued by private lenders. They can only be used on a primary residence.

VA loan

If you or your spouse is a current member of the military or a veteran, you could use a Department of Veterans Affairs (VA) loan to finance your purchase. VA loans do not require down payments, mortgage insurance or a minimum credit score. They are also easier to qualify for than conventional loans and carry lower closing costs. In addition, VA Loans do not have loan limits. However, like an FHA loan, a VA loan must be used on your primary residence — not on an investment home.

How to apply for a multi-family property loan

After you decide what type of loan you’re going to apply for, it’s important to understand the steps to actually apply for it. Note that these steps may vary based on the type of loan.

  • Shop around: Look at local banks, community credit unions and mortgage lenders to find out which offer the best rates.
  • Meet the qualifications: The specific qualifications vary based on the type of loan, but there will still be some standards you must meet. Conventional loans generally require a credit rating above 680, while FHA loans have looser standards. In addition, you must prove you have a certain debt-to-income level — conventional loans require a level no higher than 45%.
  • Get a Certificate of Eligibility (for a VA loan): In order to get approved for a VA loan, you must show a Certificate of Eligibility (COE).

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    Can I use rental income to qualify for a loan?

    You can use rental income to qualify for a loan, but the rental income must be verified — usually by providing a signed lease agreement. In addition, you must be an owner-occupant, not an investor.

    How big of a mortgage can I get for this type of property?

    For a duplex, the Federal Housing Finance Agency (FHFA) conforming limit for 2023 is $929,850 in most areas. For a triplex, it is $1,123,900. For a quadruplex, it is $1,396,800.

    How many units can I purchase with a conventional loan?

    The exact number will vary based on the lender, but most will approve a loan for up to 10 properties.

    Bottom line

    While financing a multi-family property can seem like a daunting and difficult task, the potential benefits make considering it worthwhile. Even if you have a lower income, an FHA loan can put a multi-family property purchase within reach. Be sure to research offers from multiple lenders so you get the best possible loan for your situation.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Rocket Mortgage, “ What Is A Non-Owner-Occupied Mortgage? ” Accessed Jan. 25, 2023.
    2. Federal Housing Finance Agency, “ Calculation of 2023 Conforming Loan Limit Values Under HERA .” Accessed Jan. 25, 2023.
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