One of the most frequent questions we get from first-time duplex buyers is if they can use FHA financing to purchase a duplex. The answer is yes, however, there are a few things to know about buying a duplex with an FHA loan.
What is an FHA loan?
An agency within the federal government, the federal housing administration, assists banks with making loans with low down payment requirements. When you put less money down, there is a higher risk for the lender you work with since there is little equity in the property. As known as a government backed mortgage, these loans have certain requirements and require the borrowers to pay private mortgage insurance (PMI) to offset the risk.
Buying a Duplex with an FHA loan
Not only can you purchase a duplex with an FHA loan, triplexes and fourplexes also qualify for this loan program. With down payment requirements as low as 3.5% down, it can be a great way to start building a rental portfolio or buy an owner-occupied property that will help you offset your mortgage payment.
Advantages of using an FHA Loan for buying a duplex
Lower credit score requirements
Low down payment requirements
Easier to qualify for
Disadvantages of using an FHA Loan for buying a duplex
Mortgage Insurance Requirements (Annual premiums of up to 1% of the loan amount)
FHA Appraisal (if the property has a lot of deferred maintenance it may not pass the appraisal)
Less desirable to sellers in a competitive market
FHA loans are one of the best ways for new buyers to purchase a duplex but are not the only option buyers have. If you have the ability to increase your down payment amount to 5% there are some conventional loan programs that might be worth exploring. There are certain income guidelines but a conventional allow you to bypass the FHA appraisal and can make your offer more desirable to sellers in a multiple offer situation.
If you have specific lending questions, we are happy to connect you with a few great local lenders. When buying a duplex or investment property you want to work with lenders who understand the FHA multi-family loan market.
