Archive for the 'Financing' Category

FHA Changes Duplex Loans

said on December 16th, 2013 categorized under: Financing

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duplex loanWhether it’s a sign of an improving economy, or less risk tolerance, FHA loan limits for duplexes will be reduced as of January 1, 2014.

For much of the housing market recovery, the government sponsored insurance program increased the size of duplex mortgages it insured.

FHA insured limits vary by area and county. Higher priced regions like southern California,  for example, had and have higher loan limits than more rural regions in the midwest.

Through much of the housing crisis, duplex borrowers in the Twin Cities could obtain FHA mortgages up to $467,250. Triplex borrowers could obtain FHA backed financing up to $564,800, and four unit building buyers could owner occupy properties with loans up to $701,900.

After the first of the year, however, those amounts will be reduced. Duplex loans will be limited to $407,800, triplex loans to $492,950 and fourplex loans will drop to $612,600.

Of course, it’s important to note that for many borrowers, FHA’s recent increase in mortgage insurance rates make it a less attractive financing option for many borrowers anyway. And, as always, FHA loans are available only to owner occupants.

Conforming loan limits appear more favorable. For duplexes in the seven county metro area they stand at $533,850, triplexes are at $645,300 and fourplexes at $801,950.

These loans may have higher down payment requirements than their FHA counterparts, but come with less expensive monthly mortgage insurance fees.

If you’re thinking of buying a duplex in the near future, feel free to contact me for a referral to a loan officer who understands multifamily financing.

The First Thing You Should Do Before Buying A Duplex

said on October 21st, 2013 categorized under: Financing

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Approved loan application form and dollar billsWhen it comes to buying a duplex, it isn’t like the old days. And by old days I mean just 8 to 10 short years ago.

Looking back, people who remember the booming real estate market of the mid 2000’s often joke that anyone who had a pulse could qualify for a loan.

Today, things are quite different; a fact many duplex buyers are unaware of until it’s too late.

Back then, you needed a pre-approval letter from a lender or mortgage broker stating you could qualify for a loan. Getting one took a matter of a couple of hours, required a nominally low credit score, and some proof of income somewhere.

These days, you still need a pre-approval letter with any offer. However, getting one can take weeks, and require copious amounts of documentation like pay stubs and tax returns.

Because this now takes so long, many new investors make the mistake of waiting until they find a property they like before speaking with a lender. The trouble is, really good deals sell quickly. And by the time you get an approval letter, the property you wanted is already gone…leaving you to wonder if your life would have been different, if only you’d had a loan ready to go.

So the very best thing you can do before looking for a duplex to buy is talk to a loan officer.

If you need a referral for one, give me a call.

Government Shutdown Could Delay Duplex Loans

said on October 3rd, 2013 categorized under: Financing, Legislation

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duplex loans stalledSometimes, it seems like a federal government shutdown doesn’t impact our lives. After all, we’re still getting the mail, and most of us are still going to work every day.

However, if you’re in the process of buying or refinancing a duplex or single family home, the government shutdown may actually stop your plans.

When you apply for a duplex loan, the lender asks for a copy of the last two years of your tax returns. To make sure you’re telling the truth, they use something called a 4506T, which allows them to verify with the IRS that the tax returns you provided match the ones you gave the government.

Guess what?

Thanks to the government shutdown, the IRS is closed. And following all of the mortgage fraud committed during the real estate boom, the lenders aren’t likely to just take you at your word.

So, until the IRS opens back up, you may not be able to get a loan.

Call your Congressman. No matter what side of the debate you’re on, sooner or later, this will affect us all.

How To Buy A Duplex — After Your Foreclosure

said on August 22nd, 2013 categorized under: Financing

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good news for duplex buyersReady for some big news?

On Friday, the Federal Housing Administration (better known as FHA) announced they will allow borrowers who’ve gone through foreclosure, short-sales, deeds-in-lieu or bankruptcy to reenter the duplex and housing markets as quickly as 12 months after the event.

Normally, duplex buyers would have to wait at least three years to get another FHA insured loan. However, this new guideline allows for certain borrowers who lost their properties as the result of an economic hardship to qualify even earlier.

In other words, if the borrower’s financial hardship was the result of a recession-related event, FHA will consider them.

This should allow for thousands of people who wanted to participate in the housing recovery, but couldn’t because of a job loss, to enter the market.

To qualify, borrowers must show documents that demonstrate that credit issues were from a job loss or loss of income that was beyond their control. The buyer must be able to prove an income loss of more than 20 percent, which lasted for more than six months.

Of course, borrowers must be able to demonstrate they’re currently employed, and have had “satisfactory credit” for at least 12 months. This is defined as 12 months of good payment history on a mortgage, rent, or credit cards.

The new guideline is effective until September 30, 2016. It is subject to “bank overlays”. In other words, it will available only if a lender agrees to follow FHA’s guidelines.

US Bank Gives Duplex Buyers The Low Down

said on August 12th, 2013 categorized under: Buying A Duplex, Financing

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small down payment for duplexOne of the biggest challenges many buyers who hope to owner occupy a duplex have had is financing. After all, until recently those people really only had two mortgage options; FHA and conventional.

While FHA offered the distinct advantage of a low, 3.5 percent down payment,  this was offset by increased mortgage insurance premiums of the life of the loan. For many, this made monthly mortgage payments unexpectedly expensive.

Of course, for those with the financial resources, there was always the option of putting 20 percent down on a conventional loan. However, for many would be owner occupants, looking at a down payment of $40,000 or more isn’t even conceivable, let alone possible.

However, as the real estate market recovers, banks have begun to look for better ways of doing business with prospective duplex buyers. The best example to date of that is US Bank’s American Dream loan.

The loan is really pretty remarkable. While a borrower cannot currently own any other property, he or she doesn’t have to be a first time buyer, have a minimum credit score, and may even use up to 75 percent of a duplex’s rental income to help qualify for the loan.

Better yet, US Bank will even give the borrower up to $3000 to be applied toward the down payment or closing costs, and may even allow up to $5000 to be escrowed for repairs.

According to US Bank loan officer Conor Hesch, borrowers are not required to have a minimum credit score, and may use alternative forms of credit (like cell phone bills) to qualify.

The loan has no mortgage insurance. Interest rates are typically .5 point higher than FHA loans.

Combined, all members of the buyer’s household must not earn more than $65,000. However, that requirement is waived if the duplex is in a neighborhood where census data indicates most of the neighborhood is of low to median income. This actually encompasses many of the Twin Cities’ most sought-after neighborhoods, as the census counts data from both tenants and homeowners to calculate household income.

The loan may be used to purchase 1-2 unit properties, townhouses and condominiums.

Why Interest Rates Matter To Duplex Sellers And Buyers

said on July 1st, 2013 categorized under: Financing

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rate increaseIn recent weeks you may have heard a lot of media noise and eavesdropped on conversations where the hot topic was the rise in interest rates.

And maybe, if you’re thinking of buying or selling a duplex, triplex or fourplex you’re not that worried about it. After all, even with a rise from say, 3.5 percent to 4.5 percent, rates are still low, right?

Yes, of course.

However, an interest rate increase of one percent on a loan of $400,000, translates to $4000 more a year. Broken down by month, that a buyer’s monthly mortgage payment will be $333 higher than it was just one month ago.

For many, that will render the duplex unaffordable. For others, it will mean the difference between what might have been a healthy positive cash flow, to an investment property barely able to support itself.

Low interest rates mean higher prices for sellers, because it’s simply less expensive for buyers to borrow money. Low interest rates are good for buyers too, because more of their payment is going toward the actual property as opposed to the cost of borrowing the money.

In spite of this rate increase, it remains a great time to both buy and sell duplexes and other small investment properties. After all, can you imagine what another rate increase would do to your cash flow?

Buy A Duplex With Just 5% Down

said on June 6th, 2013 categorized under: Financing

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duplex loans with 5 percent downWant to buy a duplex but don’t have a big down payment?

If you’re going to live there, you can always get an FHA loan that requires just a 3.5 percent down payment, right?

Trouble is, with FHA’s new higher and longer mortgage insurance premiums, those loans have gotten expensive.

Well, there’s finally some good news from the mortgage industry for duplex owner occupants.

Sam Giannakakis, a loan officer with Alerus Mortgage, called yesterday with news of a loan that requires just a 5 percent down payment for owner occupant buyers.

Borrowers must have a minimum credit score of 680, be buying the duplex with the intent to live in it, and earn no more than $86,000 a year.

While the income limitations mean this loan isn’t for everybody, it nonetheless is an indication the banking industry may be rethinking some of their positions on multifamily property lending.

This loan is available nationally, and if it’s something that’s a fit for you, contact Sam by using the hyperlink above. He’d be happy to help; regardless of where you live.

FHA Makes Conventional Duplex Loans Sexier

said on April 25th, 2013 categorized under: Financing

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duplex loans get easierOK, so there’s not a lot about obtaining a mortgage to buy a duplex that’s truly sexy.

But FHA’s recent decision to not only increase the mortgage insurance premiums it charges, but also to do so for the life of the loan has created an opportunity for conventional mortgages to update their look in order to attract more borrowers.

Two of the most appealing aspects of an FHA loan for owner occupant duplex buyers is the requirement for a low 3.5 percent down payment and lower credit score requirements (minimum 640).

While these sound great, the loan also comes with a 1.35 percent mortgage insurance premium, which would add $1350 a year to mortgage payments, or $112.50 a month over the life of the loan.

Recognizing how unappealing this premium may be to many buyers, conventional lenders have put on lipstick and begun offering a conventional loan for owner occupant duplex buyers that requires a 15 percent down payment with no mortgage insurance premium, and an equally low minimum credit score.

Of course, it’s a lot more difficult to come with a 15 percent down payment than 3.5 percent. However, it’s also important to note that until now, the minimum down payment for an owner occupant duplex was 15 percent.

Clearly, conventional lenders have a strong preference for single family home buyers received even better news from conventional lenders, who now offer a loan that requires a low 3 percent down payment with no mortgage insurance preimum.

With interest rates at historic lows, it remains a great time to buy a duplex, regardless of the kind of loan you use.


One of the most confusing things for many first time duplex buyers to understand is that an FHA appraisal is not the same thing as an inspection.

An inspection is a service provided by an independent contractor usually hired by the buyer to thoroughly go through a duplex and determine the condition and functionality of the property’s structure and mechanical components.

An appraisal, on the other hand, is an independent opinion on value. The appraiser is hired by the bank (using money from your closing costs) to make sure the duplex they’re lending you money for is worth what you’re paying for it.

In a way, I can understand why some people are confused. After all, FHA appraisers are required to do some things a bit differently than he or she is asked to do for a conventional loan.

FHA is an insurance company. When a borrower gets an FHA loan, he or she is paying an extra mortgage insurance premium every month to cover any costs the bank might incur if the buyer defaults on the loan.

fha duplex appraisal checklistBefore FHA will agree to offer this insurance, they want to be sure the duplex is in relatively decent condition. And so, they have a set of guidelines or set minimum standards they want the appraiser to compare the property to.

A few of the items FHA does not want to see include:

  • Missing handrails
  • Cracked or broken windows
  • Broken doors
  • Chipped or peeling paint
  • Evidence of wood destroying insects
  • Worn out floors
  • Damaged plaster or sheetrock in duplexes built after 1978
  • Improper attic or crawlspace access
  • Leaking roofs and/or missing shingles or tiles
  • Trip hazards
  • Minor plumbing leaks
  • Lack of a functional heat source in every room
  • A missing toilet, sink or shower

If a duplex meets these items as well as several other measures, FHA will agree to insure the duplex buyer’s loan. If it fails to, the seller may agree to make the repairs prior to closing, or the buyer may choose to pursue an FHA rehabilitation loan.

Does A Higher Down Payment Change The Name Of A Duplex Loan?

said on March 18th, 2013 categorized under: Financing


duplex financingDoes the amount of your down payment alone determine the type of  financing you use to buy a duplex?

Yes and no.

Traditionally, buyers who intend to owner occupy a duplex and have saved a small down payment use FHA financing.  These loans require a minimum down payment of 3.5 percent and also have a lower minimum credit score threshold.

In exchange for these compromises in lending standards, FHA insures the loan for the lender; at a cost to the borrower.

To qualify for a conventional loan, on the other hand, an owner occupant typically must have at least 20 percent to put down on the purchase, and a higher credit score. As a result of having more “skin in the game” in the form of that higher down payment, the borrower typically isn’t required to carry mortgage insurance.

Over the weekend, I encountered a first time home buyer who had some confusion about this. His belief was that if he put more than 3.5 percent down on an FHA loan– 10 percent, for example, it would become conventional financing.  Where he was confused is that a higher down payment may or may not require him to carry FHA mortgage insurance – but not turn an FHA loan into a conventional loan.

Remember, if you are an owner occupant, you can use FHA financing to purchase a duplex, triplex or fourplex as your principal residence. It’s a great way to to become an investor, and to leverage your money for its highest possible return.