How To Buy A Duplex With No Money Down
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.
how to buy a duplex with no money down
There are several financing options for buying a multifamily property with no money. These include seller financing, hard money loans, private money loans, bridge loans, FHA loans, and conventional loans.
Buying multifamily properties is significantly more expensive than buying single-family homes, therefore, it is usually hard to enter the market as a first-time real estate investor. While banks are usually eager to provide loans, buyers should be able to come with around a 20% downpayment, depending on the real estate market or the size of the property. Source
In this scenario, the money advanced to you by a cash-out refinance can be used to make the down payment on an investment property. In other words: If you have enough equity in your current home, you may be able to start investing with no money out-of-pocket.
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%.
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.
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.
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.
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.
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.
It works like this: you buy a fixer-upper with a purchase-rehab loan, which does involve a down payment. You then renovate the distressed property, financing the upgrades with the purchase-rehab loan (try Kiavi or LendingOne for the initial renovation loan).
When the renovations are finished, you refinance the property with a long-term landlord loan (try Visio) and pull your original cash back out. It works because the new landlord loan is based on the new, after-repair value (ARV) of the property, not what you initially paid for it. So, if you created sufficient equity, you can pull some cash out when you refinance, to cover your initial down payment.
You could borrow money from friends and family. Borrow from your credit card, or a personal loan. Or work out a loan with the seller themselves!Start Investing in Real Estate with $10Compare real estate crowdfunding platforms including:
Plan on coming up with a down payment of at least 20% for a long-term landlord mortgages and hard money loans. As a note on terminology, hard money loans refer to short-term purchase-rehab loans, while portfolio loans refer to long-term landlord loans that the lender keeps within their own portfolio rather than selling. Often the same lenders offer both loan types. Try LendingOne, Kiavi, or Visio as reputable options.
Some investors take out a personal loan to cover the down payment several months in advance, then borrow the purchase-rehab or landlord loan from a private lender like Visio whenever they find a good deal. The money for the down payment is already waiting and ready in their checking account.
Leveraging is a great tool if you have no money sitting in your hand. It is really good way to build up your rental portfolio but you should also stay cautious while using some kind of leverage. Leverage works best when the property rates in your area are appreciating. But if the rates depreciate, leveraging can work against you and you can even lose your money you have put in down payment. 2008 market crash was the real example.
My favorite part is where you mentioned that rental properties offer strong returns with minimal risks. It might be a better option than stocks, even if they require a higher downpayment. Once purchased, I also think that I can just easily hire a property manager who can do all the tiring work for me.
What great ideas. I used to buy with no money down and grew up a lot, lost a lot too (LOL) and looking to come back again. I love real estate, especially apartment buildings. What a way to grow.Do you know of any groups I can join to meet people interested in the same subject? Thank you for everything.
This is a fantastic post on how to buy your first rental property with no money down. Obviously, there is no one-size-fits-all solution, but by combining various approaches, you can reduce the amount of money required to purchase a rental property. Keep posting!
Q: How can I finance a duplex or multifamily home?A: Multifamily financing options vary between owner-occupied and investment property loans. Typically, you need to put down at least 15% to buy a duplex and 20% for three- to four-unit properties. Fortunately, the loan you choose could require as little as 3.5% down to get started (0% for VA!). Multifamily mortgages work much the same as single-family mortgages, with 30 years being the standard term. However, there is a national cap on loan rates; be sure to check state and county caps as well. See our Multifamily Loan Options in MA, above.
Ive got a friend of mine that is a bank loan officer and he believes that he could get me a loan to build a rental duplex. Lets say I can build an economical duplex for 70k and it would be appraised at 100k. So, the bank would loan up to 80% of the appraised value which would cover the entire cost to build the duplex correct? Would something like this work or not to avoid having to put 20% cash down?
Table of ContentsCan You Buy a Duplex with an FHA Loan?How To Buy A Duplex With An FHA LoanHow Much Downpayment Is Required to Buy A Duplex With an FHA Loan?Using Rent to Qualify for an FHA Loan For A Duplex - FHA Rental Guidelines 2022FHA 2-4 Unit GuidelinesThe FHA Self-Sufficiency TestWhat is the FHA Loan Limit for a Duplex, Tri-plex, or Four-plex?2022 FHA Lending Limits - Low-cost Areas:2022 FHA Lending Limits - High-cost Areas:FHA Loan For An Investment PropertyBuying A Duplex As Your First Home - FHA Owner Occupancy RequirementExceptions to the FHA Owner Occupancy RequirementHow Many FHA Loans Can You Have?How Many FHA Loans Can You Have In Your Lifetime?Exceptions to the Rule of Only Holding One FHA Loan at a TimeCan you Use an FHA Loan To Buy After Bankruptcy, Foreclosure Short Sale, or Deed in Lieu of Foreclosure (DIL)?Buying After Bankruptcy, Foreclosure, Short Sale, or Deed in Lieu of Foreclosure (DIL)Frequently Asked Questions About Using FHA Loans For A DuplexHow much money down is required for an FHA loan?Can I use an FHA loan for an investment property?How many FHA loans can you have at one time?How Much Do Duplexes Cost?Can I get an FHA loan on a second home?Working with an experienced loan officerCan You Buy a Duplex with an FHA Loan?Do you dream of having your tenants make your mortgage payment for you each month? Have you ever thought of making your first home an investment home as well?
Additional reserve requirements are also imposed when buying 3 and 4 unit properties. You must have 2 months PITI in liquid reserves, in addition to having all down payment and closing costs covered. This is not required when buying a 2 unit duplex.
How Much Do Duplexes Cost?According to Fixr.com, the average cost in 2022 to build a duplex range from $285,000 to $537,000 with an average cost of $388,000 for a 3,000 foot side-by side 2 story duplex. The cheapest form of a duplex is a stacked duplex (one unit on top of the other) averaging $142,500 for a 1500 square foot stacked duplex. The most expensive duplex format is a side-by-side single-story duplex with a 5,000 square foot side-by-side single-story duplex averaging $1,100,000 to build.
One of the best parts of determining if you can afford to purchase a duplex is that if it already has a tenant, you can use that rental income as part of qualifying for the loan! However, every jurisdiction is slightly different on how this is handled so be sure to check with a local loan originator. (For Colorado Springs, we recommend Sheila Endres 719-339-4664).
BiggerPockets.com is a fabulous resource for those looking to enter the real estate investing world and they have a lot of information regarding purchasing multi-family units. I compiled several of their suggestions, along with my own, to help steer you in the right direction before you begin your hunt for a duplex.
Many people want to buy investment properties because of the fantastic returns they can provide. However, many people do not have the 20 percent down payment (or more) that most banks require. There are ways to buy an investment property with little money down. The easiest way to buy an investment property with less than 20 percent down is to buy as an owner-occupant and later rent out the house, but there are many other options for investors as well. Using a line of credit, refinancing your home, house hacking, the BRRRR method, or even credit cards can provide ways to buy investment properties for less money. Seller financing is a great way to put less money down on a rental property if you can find sellers who are willing. A more advanced technique is to use hard-money financing that you can refinance into a conventional loan. Whatever way you choose to buy a rental property, research the method to make sure that it is legal in your state, your lender approves it, and that you are not stretching your finances too thin. 041b061a72