Real estate investing isn’t just for the wealthy. In Minneapolis – Saint Paul, the market we serve, and beyond, there are ways to invest in duplexes when you have almost no money at all.
Of course, we’re not mortgage lenders, so know that the only way to figure out what you qualify for is by working with your lender. However, before you talk to your lender, there are a few things you should know about qualifying for a duplex. These tools are what allow for the purchase of a duplex when you have a small income or inadequate cash reserves.
Depending on your unique scenario, some tools may be available to you while others may not. First-time homebuyers, for instance, have access to many tools. Seasoned investors, on the other hand, do not have as many tools available to them.
Low Down Payments: Buying a Duplex with FHA Financing
Here’s a great tip that not everyone knows: you can purchase a duplex in almost the same way as you would a single family home. Many first-time homebuyers are able to use FHA financing if they intend to owner-occupy the duplex they’re buying. FHA financing allows for down payments as low as 3.5% to 5%, meaning that potential duplex buyers only have to come up with as little as $7,000 for a $200,000 home rather than the typical $40,000 that would be necessary when utilizing a conventional loan.
However, if you’re cash-strapped, $7,000 may sound like a lot of money. Depending on the city or neighborhood you’re moving to, there may be a solution for this as well.
Down Payment Assistance: Utilizing Available Programs
In some cities and states, or sometimes even at the federal level, down payment assistance programs are offered to first-time homebuyers. These programs exist to help someone to come up with the money they need to put up a down payment. The amounts and programs offered by these programs vary by city or by region. Currently, the Minnesota Housing Finance Agency has such a program that exists for first-time homebuyers in the state of Minnesota. You can read more about it by following this link.
Usually, with down payment assistance, the amount given to you is offered up as a deferred loan. You’ll often have to pay back the money after a certain period of time or after you sell the property.
Using Rental Income to Qualify: Getting More with a Duplex
Here’s a great tool that’s available to most investors. If you’re planning to rent out the other half of your duplex, you are actually able to use a portion of the anticipated rental income generated from that side to help you qualify for a loan!
In most cases, mortgage lenders allow for the use of 70 – 75% of an anticipated rental payment as stated income during your qualifying process. Why? Lenders understand that you’re going to be generating income from the property, so they’re willing to count that as your income even as you qualify.
Let’s say that a professional assessment determines that you’re able to rent out the other side of your duplex for $1,000 a month. That means that you’ll be able to add approximately $750 per month to help you qualify. Imagine the difference $9,000 a year can make during that process. If you’re looking to invest in a duplex, make sure to bring this up with your lender.
Even if you have limited resources available, you may be able to qualify for a great duplex. Of course, some programs aren’t always available, and each is constantly changing. If you’d like to know more about what’s available to you today and how you can get started with the duplex buying process, please do feel free to give us a call. We’d be happy to talk more about how a duplex could be right for you.
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