If you’re thinking of buying to owner occupy or selling a Minneapolis or St Paul duplex, you may think you can pay or ask any price in the world. After all, with an FHA insured loan, all a buyer needs is 3.5 percent down, right?
Not so fast.
Here’s a conversation we haven’t had in a long time.
FHA has limits to the size of the mortgage insurance they’ll provide.
While these numbers vary by where the property is located, it’s important to remember that there are caps.
In the Twin Cities seven county metro area, for example, FHA loan limits are:
Single Family – $326,600
Duplex – $418,100
Triplex – $505,400
Fourplex – $628,050
While these numbers don’t limit the amount you can spend, they do restrict the amount of the FHA insured mortgage you can get. You are welcome to come up with a bigger down payment to make up the difference.
What do I mean? Well, If you write an offer on a duplex for $450,000, your minimum down payment is 3.5% or $15,750. The purchase price of $450,000 – your down payment of $15,750 leaves you with $434,250. FHA will lend you $418,100. $434,250 – $418,100 leaves you with an additional $16,150 in cash you must come up with to purchase the property.
This also impacts Minneapolis duplex, triplex and fourplex sellers. After all, the lower the down payment requirement is for a loan, the bigger the pool of prospective buyers you have. Less buyers means fewer people competing for the opportunity to purchase your property, which may impact value.
After nearly a decade of not having to worry about hitting the ceiling of FHA mortgage insurance, it’s important to be aware of how the reduced limits of the real estate crash may still effect Minneapolis duplex values today.