Duplex Mortgage Loans Down Payment Guidelines

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Duplex Mortgage Loans Down Payment Guidelines

This BLOG On Duplex Mortgage Loans Down Payment Guidelines Was UPDATED On October 10th, 2018

A duplex is a two unit multi-unit residential housing unit.

  • In Chicago, it is often called two flats when there is an apartment on the first floor and another apartment on the second floor
  • The owner often lives in one of the units and rents out the other unit
  • Two flats in Chicago often have basements
  • Many Chicago two flats have basement apartments and often times, these basement apartments have been remodeled without proper building permits but the duplex owner still collect rent
  • The City of Chicago is aware of this but do not enforce the building code
  • Mortgage lenders who originate duplex mortgage loans will not count rental income from illegal basement apartments

3.5% Down Payment FHA Versus 15% Down Payment Conventional

A duplex or 2 flat is an excellent choice for those home buyers who eventually want to be property investors or first time home buyers who want a lot of property for their money.

  • A duplex home buyer can qualify for a 3.5% down payment duplex mortgage loan
  • This only holds true if the duplex is an owner occupied residence
  • Duplex mortgage loans have higher FHA loan limits than single family loans
  • Rental income for the additional unit can be used for income qualification
  • HUD allows up to a $468,150 loan limit on duplex mortgage loans
  • One of the units of the duplex must be owner occupied and the second unit can be rented
  • The appraisal of the 2 unit needs to include a 1007, which is the schedule of market rents
  • From the schedule of market rent for the rental unit, 85% of the market rent can be used towards rental income in qualifying borrower’s debt to income ratios on FHA Loans
  • Conventional Guidelines only allow 75% of the potential income to be used

Using Vacant Apartment Income On 2 To 4 Unit Properties

Buyers of multi-unit properties can use 85% of potential rental income on FHA Loans and 75% of potential rental income on Conventional Loans:

  • Correct, 85% of rental income
  • I just checked HUD’s website, and the loan limit for a 2-unit is $468,150
  • The duplex home buyer also needs expanded homeowners insurance to include 6 months rental loss insurance
  • For conventional duplex mortgage loans, a 15% down payment is required for owner occupied duplex properties

Can I Purchase A Single Family Owner Occupied Home After My Duplex Purchase?

Home Buyers can qualify for another owner occupied home after you have lived on duplex for at least a year.

  • They can rent out the primary unit of your duplex
  • Homeowners can only have one owner occupied home
  • But there are exceptions to the rule where if they purchased an owner occupied home but want to move out of there and purchase another owner occupied home
  • Exceptions to this rule is if you get a job transfer that is beyond commuting distance or if they need to either upgrade home because family is expanding
  • Or down size home because kids are now grown and are off to college
  • Buying a single family home after purchasing an owner occupied duplex qualifies for upgrading to a larger single family home

Home Buyers who need to qualify for duplex mortgage loans with a direct lender with no mortgage overlays on government and conventional loans can contact us at Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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