Conventional Duplex Financing
For the traditional, non-owner occupant investor
Lenders are reluctant to approve loans for new investors because they are considered to be a higher risk. Investors just entering the rental property market need a higher credit score and more cash reserves to qualify for a multi-unit mortgage. They should anticipate paying more in upfront fees or a higher interest rate on the loan.
Conventional mortgages used for buying a duplex and other small multi-unit properties are permanent “conforming” loans usually offered by traditional banks and lending institutions. These mortgages have terms of 15 to 30 years and can be used to finance properties between two and four units. These types of mortgages are conforming because they are typically structured around Fannie Mae’s required qualifications and maximum loan amounts even though they aren’t backed by the federal government.
These mortgage products could be right for the investor who wants a long-term loan on a 2 - 4 unit property that is in relatively good condition. Experienced investors usually turn to lenders and financial institutions where they already have a banking relationship.
Conventional multifamily loan amounts and down payments:
Two-unit property: $533,800 to $800,755
Three-unit property: $645,300 to $967,950
Four-unit property: $801,950 to $1,202,925
Loan to Value: Up to 80 percent
Down payment: 20 percent or more
These maximum loan amounts are regional. Higher cost areas may have higher maximum loan limits. A typical down payment with a conventional loan is 20 percent or more of the purchase price.
Conventional multi-unit mortgage interest rates and cost:
Rates: 4.5 to 6.5 percent
Loan origination fees: 0 to 3 percent
Closing costs: 2 to 5 percent
Conventional mortgage rates can be fixed or variable. Fixed rates are fully amortized throughout the loan’s term while variable rates typically reset within a seven to 10-year period. Variable interest rates are based on the six-month stated London Interbank offered rate (LIBOR), and there is usually a cap limit based on the starting interest rate plus 5 percent to 6 percent. You will also be charged an appraisal fee of $500 - $800 as well as an application fee around $100 to $200. Loan origination fees and closing costs are typically taken directly out of the loan.
Multi-Unit Conventional Mortgage Terms
Term: 15 to 30 years
Funding time: 30 to 45 days
Conventional Multi-Unit Mortgage Loan Requirements
Number of units: 2 to 4
Credit score: 680 or higher
Cash reserves: 6 to 12 months