Why An FHA Mortgage May Make Your Minneapolis Duplex Worth More

If you were one of the rare Minneapolis or St Paul would-be duplex sellers who used FHA financing to acquire the property in the last decade, it could pay off for you.

That’s because FHA loans are assumable. If your interest rate is lower than the going rates in today’s mortgage market, it’s like found treasure to a buyer.

One of the most important things to a buyer is the size of the monthly payment. Lower interest rates mean lower payments, and as a result, buyers are often willing to pay more for a property as a result.

To assume the current mortgage, the buyer must intend to occupy the duplex, triplex or fourplex as a primary residence. Just as if the buyer were obtaining a new FHA-insured mortgage, the property must meet standard FHA criteria of safety, structure and security.

The buyer and seller need to work together to obtain the bank’s permission for the assumption. The seller must be current on their mortgage payments.

The buyer must also apply for and meet the lender’s credit and income criteria to qualify for a mortgage. The buyer must have a minimum credit score of 580, a maximum debt-to-income (DTI) ratio of 43% and be able to provide proof they can make the mortgage payments.

The buyer will be required to pay the lender an assumption fee from .05% to 1% of the original loan amount, and closing costs from 2-5% of the loan balance. Of course, the seller will also require compensation for their equity in the property.

This sounds like a big chunk of cash. However, if your FHA loan is several points lower than current mortgage rates, the buyer may see assuming an FHA mortgage as a chance to save money, not lose it!