One of the biggest challenges of the Minneapolis and St Paul duplex and small multi-family market in 2019 was FHA lending limits.
Since the tightening of lending criteria during the Great Recession, duplex buyers have seen fewer low down payment loans available to them.
In most instances, investors are required to have a minimum of a 20 percent down payment. Owner-occupants, on the other hand, can also contribute 20 percent. However, most are first time home buyers who need to avail themselves to the low-down-payment (3.5 percent) option of an FHA loan.
While an FHA loan is usually slightly more expensive for the buyer, as their comparative lack of equity makes them a higher risk. As a result, in addition to their interest and principal, they are required to contribute an additional amount for a mortgage insurance premium.
Borrowers were also limited to the amount they could spend. In most metro counties last year, the cap on a duplex loan was $469,600. If the difference between that amount and the purchase price was greater, the buyer was responsible for bringing the difference to closing.
For most first time home buyers, this wasn’t possible.
As a result, there was a large drop-off in the number of duplexes that sold last year for more than $500,000 compared to those listed for less.
That changed recently when FHA recognized that prices were rising and adjusted their loan limits accordingly.
On January 1, loan limits were raised. The new maximum loan an FHA buyer can get on a duplex in the seven-county metro area is $469,000.
For triplex buyers the limit is $592,600.
And for fourplex buyers, the ceiling is $736,450.
Loan limits for veterans using their VA loans were also raised. And the numbers are crazy. A veteran can acquire a VA loan of up to $653,550 for a duplex, $789,950 on a triplex and $981,700 on a four-unit.
The increased limits in both loan programs should not only help buyers using FHA or VA financing write more competitive offers, but also allow sellers to have more potential buyers for their Minneapolis and St Paul duplexes.