Financing a duplex: how to get a loan for an apartment building



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Investing in real estate can be tricky. Finding the right property is not always easy, and financing is just as difficult. For novice investors, one solution can help reduce the hassle: buying a duplex.

As a duplex owner, you can live in the property by renting out the remaining space. And since you will be using it as your primary residence, it will be easier for you to get funding.

Here’s what you need to know about funding a duplex:

What is Duplex?

A duplex is a property that is split into two separate living quarters. Basically, it’s like having two houses in the same property. Each dwelling has a separate entrance, and some even have separate garages and open spaces.

The duplex is different from the twin house, which consists of two houses and two lots and is considered to be two different properties. Duplex one mortgage covers both blocks.

What is a multi-family home?

A multi-family home is basically a property that has different apartments that families can live in. This term is commonly used to describe a property with two to four apartments. Duplexes are a type of apartment building.

Building for living in a duplex

When you buy a duplex, you can become an owner, living on one side of the property and renting out the other. This has certain advantages:

Duplex Investment Case

Instead of living in a duplex, you can get a multi-family mortgage and rent out both sides of the duplex. Here are some of the benefits of financing a duplex in this way:

  • More rental income: By renting out both sides of the duplex, you are likely to generate more rental income, which will give you more cash flow.
  • Avoid living close to your tenants: If you don’t want the tenants to bother you, renting out on both sides will keep you out of trouble. Your tenants are less likely to come to you as you will not be living in the neighborhood. They can contact you during normal business hours if there is a problem.

How to finance a duplex or apartment building

Funding the duplex you plan to live in is generally easier to finance than the duplex you don’t live in. If you do not plan to live in an apartment, this is usually considered an investment property, so you will need to come up with a larger one. an initial fee and meet other requirements of the lender.

For property owners

Overall, the financing process for an owner-occupied duplex is very similar to obtaining a mortgage for a single-family home.

Depending on the type of mortgage you receive, you will need to meet the following down payment requirements for an owner-occupied duplex:

Ordinary loan FHA loan VA
Min. an initial fee fifteen% 3.5% 0%
Closing costs Yes Yes Yes
Mortgage insurance Yesone Yes Not
oneIf the down payment is less than 20%

Ordinary loan

you can use ordinary loan as a mortgage for several families. These loans are subject to certain restrictions. Compliance with credit limits are established each year by the county. They are the same in most areas except for the expensive ones. In most cases, the loan limits are as follows:

  • Single-family: USD 548,250
  • Duplex: USD 702,000
  • Triplex: USD 848,500
  • Quadruple: USD 1,054,500

If you live in an area with high prices, you can check with Fannie Mae or Freddie Mac about the restrictions in your area.

Good to know: Normal mortgage requirements are more stringent than the requirements for government-backed loans. For example, you will need a higher credit rating to take a regular loan.

You will also need to pay PMI if your down payment is less than 20%, although this can usually be canceled after you have accumulated sufficient capital.

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FHA loan

FROM FHA loan, you will have to comply with the applicable loan limits, but you may not have the same strict credit requirements that you would meet with a regular loan.

FHA loans come with a relatively low down payment of 3.5%. However, you will pay mortgage insurance premiums for the life of the loan if your down payment is less than 10%. If you invest more than 10%, your mortgage insurance will be canceled after 11 years.

VA credit

For those who meet the requirements, VA credit can be a good choice when funding a duplex. You don’t have to put anything in, and you don’t have to pay for mortgage insurance.

However, VA does charge pre-financing fees ranging from 1.4% to 3.6% of the loan amount, depending on your down payment and whether or not you are using a VA loan for the first time.

For investment properties

If you don’t live in your duplex, the situation changes. You will need a higher down payment — for regular loans, the minimum is 25% — and the lender may want to see other documentation, such as local rental rates and employment statistics, that indicate that the property will be profitable.

No government-backed mortgages

Government-supported programs such as FHA loans and VA loans require you to reside on this property as your primary residence. Unless you plan to live in a duplex, you will not be able to access these programs.

Higher requirements for a down payment

Lenders require a larger down payment if you are not using the property as your primary residence. This is in part due to the fact that PMI is not available for investment property.

Using rental income to obtain a duplex loan

Projected rental income can be used when applying for a multi-family mortgage, even as first time home buyer

The appraiser will include a special form called the Small Residential Property Appraisal Report (Form 1025) with your appraisal report, which takes into account a number of different things, including:

  • What each apartment can rent
  • Property condition
  • The cost of a comparable rental property in your area
  • Neighborhood characteristics

Once this is done, Fannie Mae will allow you to “calculate” 75% of the market rent when you get your loan.

So, let’s say your monthly mortgage payment for a duplex is $ 1,500, and you plan to live on one side and rent out the other for $ 1,200, market rent.

You can use $ 900 – 75% of the market rent – to reduce the amount of debt that counts towards your debt to income ratio (DTI)

Now, instead of paying off the $ 1,500 debt that affects your DTI, only $ 600 is considered part of your DTI, which can help keep you below the 50% limit.

about the author

Miranda Marquit

Miranda Markuit is a mortgage, investment and business specialist and a member of Credible. Her work has been featured on NPR, Marketwatch, FOX Business, The Hill, US News & World Report, Forbes and others.

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