How to Finance a Duplex or Multifamily Home

Thinking about buying a multifamily home? Purchasing a multifamily housing unit can be a more affordable venture if you plan to live in one of the units yourself, combining your personal mortgage costs with the costs of paying on your investment property. However, duplex financing can be complicated, and you want to know exactly what is a duplex with relation to particular kinds of mortgage loans as well.

In this article

    By carefully evaluating the benefits and challenges of financing a property that is both your main dwelling and investment property, you can prepare yourself for what’s to come. To get started, you should explore the lending requirements and figure out what duplex financing situation would work best for you.

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    Why is it important to know how to finance a duplex or multi-family home? 

    One of the major hurdles when buying an investment property is the down payment. When financing investment property with a conventional loan, a 20% down payment or higher is common, and most people cannot build up that level of wealth in cash. You’ll want to know what a duplex is worth to you before making such a large upfront investment.

    By purchasing a duplex, you won’t need quite so much upfront cash for a real estate property investment — and you can qualify for different loan standards. While conventional loans still come with private mortgage insurance if you cannot provide a 20% down payment, there are loan programs that may work to your advantage for providing a lower down payment.

    Plus, the 20% down payment that covers both your primary residence and your first investment property (since both are housed together in your home loan) is usually a more attainable savings goal than buying a single family home and also purchasing a separate standalone investment property.

    However, since duplexes may be more expensive overall than a single family home, you have to make sure that you have the required credit score, debt and income requirements, and other assets to qualify for a loan. The down payment is only part of the picture.

    When financing an owner-occupied multifamily home, lenders can take into account the rent payments as part of your income, but there are some limitations. For example, the renters may have to already be in the unit with documentation that they have a signed lease. Some portion of the rental income will be discounted by the lender, though, since some of the rental income will automatically go toward covering vacancies or wear-and-tear repairs on the unit.

    You’ll need to talk to your lender about how they factor in projected rental income in order to determine what price range of duplexes you can afford.

    FHA and VA loans

    If the multifamily home contains four units or less, you can go the route of conventional financing. You may have access to FHA or VA loans as well for these types of purchases.

    FHA loans for duplexes and multifamily housing

    FHA loans are made through private lenders. These types of loans are insured and backed by the Federal Housing Administration, making them a more secure investment for lenders in case of default.

    This, in turn, also helps borrowers because the FHA loan barriers for approval are more attainable for low or moderate income borrowers. This is particularly helpful for people who want to invest in real estate but can’t swing the 20% down payment requirement that some lenders have for conventional loans.

    With an FHA loan as duplex financing or for multifamily housing, the credit requirements, closing costs and down payment requirements will all be more flexible than they would with a conventional loan.

    VA loans for duplexes and multifamily housing 

    The VA home loan program provides veterans, service members and qualifying surviving spouses with opportunities to pay $0 down on a home loan that is guaranteed by the Veterans Administration. These loans are also offered by VA-approved private lenders.

    VA loans can be used for duplex financing, provided that you live in one of the units of your multifamily home. They make for a great start to real estate investing, reducing the barriers to entering that investment world. However, these loans are limited to qualifying retired or active duty military, making them limited in their scope.

    Down payment and requirements

    If you plan to live in the property 

    Owner-occupied multifamily housing and duplex financing has many of the same rules that single-family residence financing does. The down payments for conventional loans, for instance, will usually be set at 20% with no PMI. Lower down payments will require PMI payments. If you have excellent credit, these loans will have lower interest rates.

    For FHA loans, the down payment may be much lower and the credit requirements may also be lower. Establishing yourself with an FHA loan and later refinancing when you qualify for a conventional loan, for instance, may be an excellent way to finance your duplex. You will have to pay for mortgage insurance premiums with FHA loans, though. These MIP requirements are standard with this type of loan and can last through the life of the loan, making them pricey for some buyers.

    VA loans require that you’re an active duty military serviceman or veteran, but the loan terms are very favorable when purchasing an owner occupied duplex or multifamily housing unit. The perks include 0% required down payment, no PMI and no minimum credit score for approval. There are fees involved, however, and they’re dependent on how much you’re able to put down on the home.

    If the property is an investment 

    Investment property down payments are higher than for owner-occupied residences — and usually require over 20%. If you aren’t occupying your multifamily housing or duplex, they must be purchased through a conventional mortgage loan.

    You’ll have to be in particularly solid financial standing to finance without being an owner-occupant. Knowing what is a duplex and what isn’t, in terms of financing, is key when considering your options for beginning a real estate investment career.

    Laura Leavitt

    Contributing Finance Writer

    Laura Leavitt is a writer and teacher in Ohio. She has written personal finance stories for Business Insider, The Billfold, The Financial Diet, and more.

    Reviewed by

    • Angelica Leicht
      Angelica Leicht
      Mortgage Editor

      Angelica Leicht is an editor at The Simple Dollar who specializes in mortgages, mortgage refinancing, home equity loans, and HELOCs. She is a former contributing editor to Interest.com and PersonalLoans.org.