What we can afford to buy for a duplex

Question

Hi, so my fiancé and I are looking to buy our first duplex. We are looking to buy within the Madison, Wisconsin area. We are just wondering what would be the best home loan to go through and what some requirements are, so that we can work towards those goals. Although some of these duplexes are really expensive and I’m sure we wouldn’t be approved for loans on them, I at least want to try.

If you have any information that would be great! Thanks for all the help.

Jack Medford · Answer

@Samantha Froelich lex I agree with what @Zack Karp said about finding a loan officer. You first need to know how much debt you will be allowed to take, and also what kind of program will work for you.

How much down payment do you have available? Also, how much is the absolute maximum you want to pay per month to live in the duplex?

For example, if you want your max monthly payment to be $800/month and you find a duplex that will rent one side for $1,200/month, then you can sort of reverse engineer how much your payment should be. Using the 50% rule, let's assume $600 for expenses. This leaves $600 you can apply toward your debt service. This would give you a maximum mortgage of $1,400/month.

Not sure your financial situation, but if you qualify for a 5% 30 year fixed loan then you can take out about $260k in debt to get a $1,400/month payment.

These numbers will all change with your preferences, of course. Hopefully this will at least help to get you started.

Zack Karp · Answer

@Samantha Froelich lex the first person you need to talk to is a loan officer!  A great one will be able to discuss your goals with your best intentions in mind, and discuss what the requirements/guidelines are to help prepare you.  Or preapprove you right away!  If you need a rockstar that lends in WI, let me know.

Best of luck!

Scott Schultz · Answer

@Samantha Froelich lex

My recommendation is figure out what 1/4 to 1/3 of your Take home pay is, then determine how much all your other bills are, and see if the 1/4 to 1/3rd take home pay is reasonable for you to spend on housing, if it is, great, then work the numbers backwards, and estimate costs higher than they will be to be safe.  Go to Bankrate.com and get a mortgage calculator and play with the numbers to see what fits, while you are there get your free credit report, understand the report the bank pulls will likely be lower by 10-15% but for the most part if your score is 720 or above you will get the best interest rates, so 5% on a 30 year is in the ball park, cut off are usually at 680, 620, and 580, the lower your score the higher the rate. Also consider the Down Payment you have saved, you can buy down to 580 credit with as little as 3.5% down with FHA, and 0-3% down with WHEDA for first time buyers credit score of 620 or better, and if a veteran, The VA has a Zero Down option as well, otherwise Freddie and Fannie have 5% programs, but most common are still 20% down.  remember when you play with the numbers to include Property taxes and Insurance costs, as most calculators only give you Principal and interest payments, and in Mad Town, you can plan on Taxes and insurance to run you $300/month or more depending on how expensive the house is. As a final note, the best thing you can do is qualify without the rental income, and just use the other unit income to offset your budget as a bonus, this will insulate you from vacancy, minor repairs, evictions, ect. Best of Luck

Samantha Froelich lex · Answer

@Keith Schulz

Yes we are planning on owner occupied for at least a year

Keith Schulz · Answer

Hi Samantha,

Are yo u intending to owner occupy the duplex or is it strictly an investment property? It makes a big difference in terms of financing. If you are owner occupying one of the smaller local or regional credit unions may be your best/cheapest option. If you are buying as a non-owner occupied investment property, you may want to talk to a mortgage broker who has a variety of options. Also, it depends on if your goal is the lowest down payment or the lowest expenses or whatever works best for your situation. I'm an agent and investor in the Madison area, and I'd be happy to provide you some local lender names if you want to send me a private message.

Keith

What we can afford to buy for a duplex

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