Duplex Mortgage Loans: Rental Income Allowed
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.
Duplex Purchase: 3.5% Down Payment FHA, 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 if the duplex is an owner occupied residence. Duplex mortgage loans have higher FHA loan limits than single family FHA mortgage loans and 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, 75% of the market rent can be used towards rental income in qualifying the mortgage loan borrower’s debt to income ratios.
Correct, 75% 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?
You can qualify for another owner occupied home after you have lived on your duplex for at least a year and can rent out the primary unit of your duplex. You can only have one owner occupied home but there are exceptions to the rule where if you 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 you need to either upgrade your home because your family is expanding or down size your home because your 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.