How To Buy Grandma’s Minneapolis Duplex And Not Empty Your Savings Account

Now and then I show a buyer a Minneapolis or St Paul duplex they fall in love with but are afraid to buy.

Most often it’s a grand old 1920’s-built property filled with charm, character, and architectural detail. In many cases, it’s also been owner-occupied by someone in their 90’s. The duplex suffers not only from dated decor, but also larger, non-cosmetic repairs caused by either an elderly homeowner not noticing, or having hired a contractor who took the wrong approach to correcting them.

The trouble with these properties is that most owner-occupants don’t have the funds for a down payment and big repairs. Is there a solution?

Turns out both Fannie Mae and Freddie Mac offer renovation loans. Basically, the buyer obtains one loan for the purchase price, plus the cost of the renovations. The property simply needs to appraise for an amount equal to or greater than the two combined. For example, if a property is purchased for $300,000 and renovations total $100,000, then, when finished, it needs to appraise for $400,000 or more.

Fannie Mae’s Homestyle Loan can be used to construct ADU’s, remodeling of kitchens or baths, mechanical upgrades, or even new flooring. Of course, there are restrictions. The loan may not be used to tear down a house, build a second home on the lot, certain kinds of landscaping or for anything that can be removed, like a storage shed or light fixtures.

Closing costs, contingency reserves, permit and license fees and even the cost of renting a place to live during renovations may also be folded in to the loan.

The loan may of course be used on single-family properties on up to fourplexes, as well as second homes and even manufactured homes.

Down payment requirements are based on the property’s value once the renovations are finished. Down payments aren’t necessarily larger than other loan products. Interest rates are also lower than those of a home equity loan.

Renovation funds are held in an escrow account, and dispersed as the work is completed.

Freddie Mac’s loan product is called a ChoiceReno loan. FHA also has a product called a 203k loan.

Whether you’re interested in buying a duplex that’s a major project, or even one less daunting, there are options available.