Finding financing to purchase a duplex or a multi-family unit property is achievable. There are many different loan products designed for this property type. What determines the kind of loan you get is whether you will occupy it or not.
Owner-occupants may avail of government-backed loans as well as conventional ones. For investors, the options will be narrowed down to only conventional financing.
FHA Multi-Family Home Loans
The Federal Housing Administration ensures such loans. An FHA-approved lender provides the financial-backing. What’s good about an FHA loan is the fact that you can have as little as 3.5 percent down payment.
Of course, there are requirements that have to be met in order to be eligible. This includes making one of the units the borrower’s primary residence. While conventional lenders will require a Debt-to-Income ratio that does not exceed 45 percent, FHA can be a more lenient about this. Generally, the FHA conforming loan limits follow that of the conventional loans which is $417,000. The limits increase depending on the number of units on the property. Some areas that are considered high-cost may have a loan limit higher than that.
As for investors, conventional loans allow the purchase or refinance of such homes. For duplex homes, the minimum down payment would be around 20 percent of the homes final purchase price. For properties having more than two units, the 25 percent to 30 percent minimum down payment may be required. The borrower may need a credit score of 740 or higher to get conventional finance.
Will Rental Income Help a Borrower Qualify for a Mortgage Loan?
Basically, yes. The rental income from duplex and multi-family unit properties may be used to qualify for a loan. It should be emphasized, however, that lenders will highly prefer that there are actual renters in place than just an anticipated rental payment. If the other units are vacant, the projected rental income cannot be used as part of the loan underwriting. To make sure that the rental payments can be included in the income verification, renters must have already signed a lease.