Last Updated on September 22, 2023 by Eric Jeanette
FHA Loan for a Duplex
One of the many benefits of an FHA loan is having the ability to purchase a duplex. You can live in one unit while renting out the other to help cover the mortgage payment.
There are some very specific requirements and guidelines for FHA loans when purchasing or refinancing a duplex.
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FHA Loan for a Duplex Requirements
It is possible to get an FHA loan for a duplex and apply the same way as you would for a single family home, but have the benefit of using the rental income to qualify.
Most of the requirements are the same with just a few differences. These are the primary FHA loan duplex requirements:
- At least one of the units in the duplex must be your primary residence
- You will need to qualify by documenting your income with pay stubs, W2s and tax returns
- The maximum debt to income ratio will be 56.9%
- At least 51% of the square footage within the building must be residential.
- The minimum credit score requirement is 500
There are lenders that have overlays and change the requirements which can make it more difficult to qualify. If you would like to speak with someone who can help regardless of your scenario, then please complete this short loan scenario form and someone will get back to you quickly without pulling credit.
FHA Duplex Down Payment
When purchasing a duplex using an FHA loan, the down payment requirement will be the same as it would be for a single family home. With credit scores of at least 580, the down payment will be 3.5%. For those whose credit scores are from 500-579, the down payment will be 10%.
If you have credit scores of 620 and plan to purchase a duplex for $450,000, the down payment will be 3.5% ($15,750).
You are permitted to get a gift from a relative to help cover the down payment and closing costs.
Eligible down payment sources for a duplex:
- Savings or checking accounts
- 401k
- Gift funds
- Down payment assistance
Read more about the FHA down payment requirements
FHA Duplex Loan Limits for 2023
There are very specific FHA loan limits set for duplexes in every county in the United States. The standard loan limit for a duplex in the majority of the counties is $604,400. In high cost counties, the loan limits are higher with a maximum of $1,394,775.
You can use our FHA loan limits lookup tool to see what the FHA duplex loan limits are in your area.
FHA Duplex Rental Income
When purchasing a Duplex with an FHA loan, you have some significant advantages which can help with your mortgage approval. One of those advantages is having the ability to use the potential income generated by the non-owner occupying unit on your FHA loan application.
“you can live in one unit and have the rental income from the other help pay for the mortgage“
The rule for FHA duplex rental income is to use 75% of the estimated rental income from the non-occupying portion of the building on your mortgage application. For example, if you are able to rent the unit that you are not living in for $2000 per month, the lender can add $1500 per month in the income column on your loan application.
The estimated income will be determined by the current lease that is in place, or what the appraisal lists as the potential rent for the property. You are not able to use short term rental potential from places like Airbnb or Vrbo.
If you are not sure of what income to use, we can help. Simply complete this short loan scenario form.
FAQ – FHA Loan for a Duplex
How does FHA define a duplex?
The FHA defines a duplex as a property that has two legal separate units with at least one of them being residential. If the property is mixed use with one of the units being retail or office space, the residential unit must represent at least 51% of the total square footage.
Does the FHA Duplex have to be Owner Occupied?
To qualify for an FHA loan, the buyer must occupy at least one of the units in the duplex as their primary residence. The rule states you must live there for at least one year after the purchase date. If you are refinancing a duplex, you must live their at least one year after the closing of your refinance loan.
Read more about FHA multi family home guidelines.
What will disqualify a duplex from FHA financing?
There are various reasons why a duplex may be disqualified from FHA financing. A few of those reasons are as follows:
- The property is not a legal duplex
- The buyer does not intend to occupy the duplex as a primary residence
- Less than 51% of the square footage of the property is designated as residential
- The property does not pass the very thorough FHA inspection
- The property is in an area that is not safe
- The property cannot be properly insured
You can overcome some but not all of these challenges. If the property simply cannot meet the FHA requirements, then you may want to consider looking for a different duplex to purchase.
FHA Rehab Loan for a Duplex
If you are buying a duplex that needs work, you can borrow the money needed for the purchase and also additional funds to rehabilitate or update the property.
The FHA 203k rehab loan is a great way to buy a duplex that may be in disrepair. You can bring it up to today’s standards and potentially ask for more rent once you have made the improvements.
To qualify, you will need the same down payment and income. Some lenders may ask for better credit scores though. To learn more, read our article on the FHA 203k rehab loan.
Are Duplexes a Good Investment?
Some home buyers purchase multi family homes because of the investment potential. A duplex can be a good investment but the purpose of using FHA financing is to buy a duplex to occupy the property as your primary residence while having the benefit of some rental income to offset your monthly mortgage payment.
The best duplexes from an investment standpoint are ones where the rental income will fully cover your mortgage payment which includes principal, interest, taxes and insurance. If you have found a property where the potential rent is high enough to cover the debt service, then it is likely a very good investment.
Buying a Duplex as a First Home
One of the benefits of buying a duplex as a first home is the ability to claim the property as a primary residence. Doing so opens up the opportunity to use FHA financing with a small down payment and competitive interest rates.
You will also have the other tenant subsidizing your mortgage payment which can be a huge benefit for first time home buyers. One day, you can then purchase another home while continuing to hold onto the duplex as an investment.
When you own a duplex, you are now a landlord which means you need to respond to the various complaints from the tenant. Usually it will be related to things that need to be repaired. Learning how to collect rent and dealing with tenants who do not pay can be a challenge owning a duplex.
How to Buy a Duplex with No Money
Some home buyers are low on cash and do not have the down payment needed to purchase a duplex. While FHA guidelines require a 3.5% down payment, you may have the ability to purchase the duplex without using any of your own money.
First, you can get a gift from a relative for the down payment.
Next, you can also find down payment assistance.
Finally, you also have the option to look into seller financing.
If you have VA eligibility, then you can potentially purchase without a down payment at all. Read [FHA vs VA loans]
Frequently Asked Questions
Can you buy one side of a duplex?
You cannot buy just one side of a duplex if both units are on one deeded parcel.
Can I kick the tenants out after I buy a duplex?
The local tenancy laws will dictate whether you can remove tenants from the property immediately after purchasing a duplex. You may need to wait until the lease expires even if you plan to occupy the property as your primary residence.
