How to Buy a Duplex with FHA Financing

  • November 9, 2021
  •   •  
  • 4 min. read time
mortgage blog, buy a duplex, preferred rate

Deciding to buy a duplex or multi-family property can put you on a path toward financial freedom. Whether you’re a first-time homebuyer or you already own property, buying a multi-family property can generate passive income, extra cash flow, and build home equity. You can buy a duplex with FHA financing or conventional financing. Each option comes with a different set of requirements and benefits.

In short, a duplex is a residential property with two units. A multi-family property is a residential property with up to four units. To get approved with FHA financing, you’ll need to be the owner-occupant in one of the units. This holds true for duplexes, triplexes, and multi-family properties up to four units.

Note: If you’re looking to buy a multi-family property with five units or more, it’s considered commercial property. Getting financing for commercial property is a different process with a number of requirements.

Connect with a mortgage advisor if you’re ready to take action and discuss the advantages.

Top 3 Mortgage Options to Buy a Duplex or Multi-Family Property

FHA Loans

FHA loans are government-backed home loans. To get approved when you buy a duplex, you’ll need to live in one of the units. By living in one of the units, the property is considered your primary residence, and you can also use rental income to help you qualify. FHA financing is often the best choice for first-time homebuyers and buyers who want a small down payment. FHA loans have fewer requirements, lower closing costs and down payments as small as 3.5%.

Conventional Home Loans

Conventional loans are the best option if you have excellent credit and plan to make a large down payment. Getting approved for a conventional mortgage offers more flexibility since they’re offered through private lenders (mortgage lenders, credit unions, and banks). You can buy a duplex or multi-unit property with a conventional mortgage. In general, a conventional mortgage may be the best option if you have strong credit and plan to make a large down payment.

VA Loans

If you qualify, VA loans offer several advantages — no minimum credit score, no down payment requirement, and no private mortgage insurance (PMI). To be eligible for a VA loan with 100% financing when you buy a duplex, you must be one of the following:

  • An active-duty service member
  • Military veteran
  • Surviving spouse of qualifying service members
  • Eligible members of the National Guard and Reserves

Do I need to occupy the property if I buy a duplex or multi-family property?

When you apply for a mortgage, you’ll need to declare the property type: principal residence, a second home, or investment property. So when you buy a duplex as an investment property, declaring it as your principal residence will give you the best mortgage options and the lowest mortgage rates.

You can declare yourself the owner-occupant by living in one of the units then get the benefits of a principal residence mortgage.

If you decide on a conventional mortgage, you don’t need to live at the property. However, it’s a requirement to live in one of the units if you want FHA financing. What’s more, there are a number of discounts, low down-payment options, and other advantages when you declare your property as a primary residence, which we blogged about here.

RELATED: How to declare your property as a primary residence (and why it matters)

Can I use the FHA 203K loan to buy a duplex that needs work?

With the FHA 203k loan, you can buy a duplex that needs a lot of work and make the repairs manageable with one mortgage. The 203k combines the price of the property with all renovation costs and finances the total with one mortgage. With an FHA 203k, the mortgage includes the purchase price plus all the renovations, so you’re able to spread the renovation cost over the life of the loan. One mortgage, one monthly payment. There are great benefits and a few restrictions, which we blogged about here

RELATED: When is it smart to use a home equity loan or home equity line of credit for home renovations?

What credit score do I need to buy a duplex?

Buying a duplex or fourplex as an investment property can be a lot less stressful when you know what to expect. Mortgage lenders look at your credit report and your debt-to-income ratio to evaluate risk, which affects the terms 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 good credit score will help you secure the lowest mortgage rate. What’s more, there are specialty loan programs available for homebuyers who want to buy a duplex or multi-unit property.

Talk to a mortgage advisor (for free) to discuss options that can save you money.

Take Action

If you’re ready to buy a duplex or multi-family property, we can guide you through the process and help secure the best financing. There are several loan options and different advantages available depending on your homeownership goals. Connect with a local mortgage advisor to get started. We’d love to help.