Can an FHA Loan Be Used to Buy a Duplex-Style Home?

The 2024 FHA Loan Handbook

This is part of an ongoing blog series in which we answer common questions about FHA loans. Today’s question is: Can I use an FHA loan to buy a duplex-style home with two units?

The short answer is yes, an FHA-insured mortgage loan can be used to purchase a duplex property, as long as you meet a few key requirements.

One of the most important requirements has to do with owner occupancy. Generally speaking, the person buying the home must live in one unit, in order to use an FHA loan to buy a duplex. The borrower must also make a down payment of at least 3.5% of the purchase price or appraised value.

Can I Use an FHA Loan to Buy a Duplex?

If you meet the minimum eligibility criteria for the program, and you plan to live in one of the units of the property, you can use an FHA loan to buy a duplex multifamily home.

We talked about the owner occupancy situation already. Owner-occupants who wish to purchase a duplex home could qualify for FHA or conventional financing. But an investor who does not plan to live in the property is typically limited to conventional financing.

As a result of these requirements, people who buy duplex homes using FHA loans typically plan to live in one of the units and rent out the other. So the multifamily house essentially becomes a home as well as an investment property. The key caveat here is that the FHA borrower needs to be an owner-occupant, meaning they plan to reside in the home.

HUD Handbook 4000.1 offers the following definition:

“An Owner-Occupant Borrower is a Borrower residing in the Property secured by the FHA-insured Mortgage as a Principal Residence.”

A Down Payment of 3.5% Is Required for Duplexes

When using an FHA loan to buy a duplex home, borrowers are generally required to make a down payment of at least 3.5%. Specifically, that’s 3.5% of the appraised value or the purchase price, whichever is less. The Department of Housing and Urban Development refers to this as the “minimum required investment” for borrowers, or MRI for short.

The minimum 3.5% down payment applies to people buying a single-family home or a duplex. It is the same standard across the board for all FHA borrowers who are buying a house, whether it is a single-family or multifamily property.

The good news is that the Federal Housing Administration allows borrowers to use funds funds provided by a third party, to cover some or all of the down payment expense. This is known as a gift, and it can help ease the burden associated with the upfront investment on the house.

Generally speaking, these down payment gifts are allowed for borrowers using an FHA loan to purchase a single-family home or a two-family, duplex-style property. An important requirement is that the person donating the money has to provide a letter that states they do not expect any form of repayment.

Credit Score Requirements for Borrowers

The minimum credit score requirements for FHA borrowers is the same for those buying a duplex or a “regular” single-family home. Current HUD guidelines require all borrowers using this program to buy a house to have a credit score of 500 or higher. In order to qualify for the 3.5% down payment mentioned above, borrowers must have a score of 580 or higher.

Keep in mind, however, that mortgage lenders can set their own requirements on top of the minimum guidelines used by HUD. This is referred to as a lender “overlay.” Some mortgage lenders require higher credit scores then the 580 minimum mentioned above, for borrowers who want to use an FHA loan to buy a duplex. So the credit requirements can vary from one mortgage company to the next.

Learn more about FHA credit guidelines here.

Loan Limits Vary by County

The Federal Housing Administration home loan program has limits to how much you can actually borrow. These limits vary by county because they are based on median home prices, which also vary by location.

There are different FHA loan limits for single-family and duplex-style properties. In fact, there are a total of four limits for each county, including:

  • One-family property (single-family home)
  • Two-family property (duplex)
  • Three-family property (triplex)
  • Four-family home

Properties with more than four unites are considered commercial real estate and are generally not eligible for FHA mortgage financing.

It’s important to familiarize yourself with these limits, because they can affect your borrowing capacity when using an FHA loan to buy a style home. Specifically, you’ll want to zero in on the loan limit for two-family properties for the county where you plan to purchase a home.

Recap of key points in this article:

  • It is possible to buy a duplex home using an FHA loan.
  • Generally speaking, the person buying the duplex property must also reside in it. This is referred to as owner occupancy.
  • The most common scenario (when an FHA loan is being used) is for the owner-occupant home buyer to live in one unit and rent out the second unit.
  • Regardless of property type, borrowers who use this program must make a minimum down payment of 3.5%.
  • In order to qualify for the low 3.5% down payment option, borrowers must have a credit score of 580 or higher.
  • Some mortgage lenders set even higher credit requirements for borrowers planning to use an FHA loan to buy a duplex. This is referred to as an overlay.
  • There are limits to how much you can borrow. These limits vary by county, and they are different for duplex properties than for single-family homes.

This article answers the question, can an FHA loan be used to buy a duplex home? If you would like to learn more about this program, follow the hyperlinks included in this article or refer to our research library for more articles.