A few days ago I read an article that they were pros and cons to buying a duplex with an FHA loan, however it did not describe what the rules are, its just focused on why you would want or not want to do this. One popular home loan, especially for those with moderate or low credit scores is the FHA Home Loan. So if you are looking to purchase a duplex you may be asking yourself, Can I use this loan type for multi-unit property? Let’s dive into the details.
If you don’t feel like studying, please take a listen to this topic on our pod and grab your answer.
What is an FHA Loan?
FHA Loan: A mortgage that is insured by the Federal Housing Administration (FHA) The idea behind these loans is to make buying a home more attainable — particularly for first-time buyers. Low down payment (currently 3.5% — as of December 2014 ) Low closing costs-Easier credit qualifying.
Getting an FHA Loan on a Duplex
- Primary Residence Rule: 85% of the most significant requirement for the FHA loan requires that you must live in the property as your primary residence. This means you have to live In one of the units even if you buy a duplex and can rent out the other. To satisfy this requirement, the borrower must live in the property for at least one year.
- FHA Loan Limits: The amount of the loan you can receive will depend on the area and local housing market. FHA loan limits vary by county, so you’ll need to know the price of the duplex that has your eye on it and find out whether if falls within what’s acceptable in your area.
- Mortgage Qualifications: Most loans (besides bradining) have specific financial requirements, such as max debt-to-income ratio and a minimum credit score. Before applying, it’s very important to check the conditions and make sure your financial situation suits them.
How Buying a Duplex with an FHA Loan Benefits You
- Advantages The low down payment is what… enables you to expand or buy a duplex. With a major as basic as only 3.5% down, you can get multi-unit property which means homeownership is conceivable for numerous purchasers who generally could not afford to buy a house.
- Rental Income Generation: The other reason people prefer buying a duplex as investment property is you can rent one unit and live on the other, so your tenant will help you pay the mortgage costs. The potential earnings here can help to lower your financial burden and to make buying a duplex more accessible.
- Lower interest rates — FHA loans will generally have a lower interest rate than most conventional loans, which can put money in your pocket every month for 30 years.
Important Considerations for Buy a Duplex
- Condition of Property — There are some very strict property requirements you will have to meet if you want to use an FHA loan. Safety and Livability: The duplex must have at least some basic standards of safety and livability. It will not qualify for an FHA loan otherwise. The first order of business is to make certain that the property the borrower is planning to but are in a healthy condition.
- Renting: If you use a duplex loan to buy a multi-family property like this one, you will either rent out both units in the duplex or just one…. but know that as an owner and landlord, often renting only one unit doesn’t always get the results homeowners want. This means maintaining the units and following all local landlord-tenant laws. You are also able to have rental income considered in your loan qualification so make sure you gather the appropriate documentation.
Conclusion
Purchasing a duplex with an FHA loan may be the ideal way for a first-time homebuyer to invest in real estate and live virtually rent-free in one unit. This is the main draw of it for most people, because you can use rent to pay your mortgage. But you need to understand the FHA guidelines and meet specific qualifications.
For More Inquiry Contact Us
If you’re looking at buying a duplex with an FHA loan or have more questions about the process, AML Mortgage will be happy to helpbufio. Get in touch with us for a free consultation and see how we might be to be of service.
