I Qualify for $700k SFH 5% down, but need 15% for $700 Duplex?

[Zach Stiegler]

My bank, Schools First FCU says I can do 3% down on a $650k SFH or 5% on a $750k SFH, but if they see that the home is actually a Duplex then they force the Down Payment to be 15% even if I can qualify for 3% Down with zero rental income! Seems like a broken system to me.

Are there banks that can give me a 3-5% conventional loan on a Duplex if they're the same price as a SFH? That seems crazy that I can put less money down on a property that will net me less money than one that could make my income higher or worst case scenario, just stay the same. I just don't see why they have to change the underwriting when I proved I can handle a $700k property without any additional income.

Am I misunderstanding anything? Are there banks that can qualify me for a property at a flat rate and down payment regardless of whether it's 1-4 units, as long as it's residential?

[Miranda Holland]

I'm pretty sure there is. The quickest way to find them might be to work with a licensed mortgage broker. They have a list of conventional lenders to match you with the right one 

[Eric Veronica]

Fannie/Freddie conventional guidelines require a larger down payment for 2-4 unit properties.  15% down for a duplex is the norm.  You may be able to find portfolio options with lower down payment requirements.   

There is a conventional program called "Homepossible" which can be approved with as little as 5% down on a duplex.  The big catch with this program is that is requires your qualifying income to be below 80% of the area median income limit.  Since you are looking at 650k purchase price it is unlikely that your income will be low enough to be under the limit and still qualify for the loan from a debt to income ratio standpoint. In some parts of the country this is a valuable program but not in high priced coastal markets.  

[Jay Hurst]

Quote from @Zach Stiegler:

My bank, Schools First FCU says I can do 3% down on a $650k SFH or 5% on a $750k SFH, but if they see that the home is actually a Duplex then they force the Down Payment to be 15% even if I can qualify for 3% Down with zero rental income! Seems like a broken system to me.

Are there banks that can give me a 3-5% conventional loan on a Duplex if they're the same price as a SFH? That seems crazy that I can put less money down on a property that will net me less money than one that could make my income higher or worst case scenario, just stay the same. I just don't see why they have to change the underwriting when I proved I can handle a $700k property without any additional income.

Am I misunderstanding anything? Are there banks that can qualify me for a property at a flat rate and down payment regardless of whether it's 1-4 units, as long as it's residential?

 @Zach Stiegler   When lenders say a "conventional loan" they mean a loan the can be sold to Fannie Mae or Freddie mac.  These two agencies set the loan to value maxes for their loans.  Fannie and Freddie both require 15% down for an owner occupied 2 unit, and 25% down for an owner occupied 3 or 4 unit. So, that is the same no matter who the lender is. So, they are not changing the underwriting but rather doing what they are required.  Now, if you told them you planned on buying a duplex they should have told you this upfront.  

FHA has a different set of rules then conventional. You can put down 3.5% for a 1-4 units as an owner occupier.

Here is the matrix and link directly to the source, Fannie Mae:

Fannie Mae loan to value matrix

[Robert Reynolds]

You can do 3.5% FHA loan on a Duplex, not sure if your credit union offers that.

[Stacy Raskin]

@Zach Stiegler, If you're going to live in one of the units, you can go FHA. Are you going to live in one of the units? If so, I just priced out a scenario in the 5s. I'm also working with temporary buydowns where if you can get a seller concession or want to do any upfront interest payment, you can get 2-1 buydown, a 3-2-1 buydown, a 1-1 buydown or a 1-0 buydown.

So if let's say the rate is 5.8%, for your first year, it would be 2.8% for the first year, 3.8% for your second year and 4.8% for your third year. That will save you thousands in interest payments. Then it would go back to the 5.8% rate for the rest of the 30 year fixed term. At some point in there, you may be able to refinance into a permanently lower rate. I'm a mortgage broker and I work with different lenders so my clients have the best options for their goals. I work with both lenders that focus on home purchases and investment property loans. Let me know if you would like to discuss more. 

[Chris Mason]

Quote from @Eric Veronica:

Fannie/Freddie conventional guidelines require a larger down payment for 2-4 unit properties.  15% down for a duplex is the norm.  You may be able to find portfolio options with lower down payment requirements.   

There is a conventional program called "Homepossible" which can be approved with as little as 5% down on a duplex.  The big catch with this program is that is requires your qualifying income to be below 80% of the area median income limit.  Since you are looking at 650k purchase price it is unlikely that your income will be low enough to be under the limit and still qualify for the loan from a debt to income ratio standpoint. In some parts of the country this is a valuable program but not in high priced coastal markets.  

 In California, I don't think I've had a single person in that income "goldilocks zone" (high enough to justify a mortgage in the amount desired on a 2-4 unit, but not so high they're over the income limit -- not too cold, not too hot, juuuuust right) since they made that infamous change in July 2019. 

It used to be my favorite loan program.

Duplex w/ FHA 3.5% down is a California relevant sweet spot.

3-4 unit generally do not pass self-sufficiency due to rent/price ratios that are driven by appreciation, so it's 20% down for that. 

[Antoinette De la Espriella]

Hi Zach, 

I also bank with schools first.  The best way to get around this would be locating a property that has a “mother-in-law” suite.  Luckily the LB and Lakewood areas have a lot of them!  
Or as other people have mentioned in the group FHA loan would be the way to go! That's my current strategy as I'm looking for a duplex right now.
Let’s connect some time! I’m based in LB 😊

[Zach Wain]

@Zach Stiegler - correct! As other said, if you want a duplex go FHA. FHA is amazing when comparing 2-4 unit primary homes vs conventional. Yes, FHA has higher PMI (and up PMI), but conventional requires more downpayment and conventional rates are about 0.25% higher for multi unit homes. FHA is the way to go for multifamily primary homes.

FHA (with some lenders) also allows 2-1 temporary buydowns which are a great tool to keep in mind during these higher interest rate environments...

[Louis Jeffries]

@Zach Stiegler as @Jay Hurst posted the Fannie Mae down payment requirements they are progressively higher for a reason. Simply multiple units are a greater risk of default. As such if you are looking a 2-4 units for their income potential Consider FHA even at the slightly higher rate. This is a great way to start house hacking or even building a rental portfolio if that is your goal.

[Zach Stiegler]

Thank you all for your posts!
Sorry for the late response. Yes I had already looked at FHA loan for a quadplex and FHA has a minimum house distance if you already own / live in a property. I need to stay within the radius that FHA disqualifies us for in regards to existing home.
Good news, I've spoken to make lenders (FCU's specifically) and actually found one that does "Essential Worker, Zero Down Payment" program that has reduced rates and no rules against already owning houses in the area. Just has a single unit max, live in the unit 1 year, and $750k loan with 0% down. 
But I'll be looking to buy more later and definitely keeping an eye out for pre built ADUs since my ADU that's being built now at my first home took 12 months to permit. Thanks everyone!

[Erik Estrada]

Quote from @Zach Stiegler:

Thank you all for your posts!
Sorry for the late response. Yes I had already looked at FHA loan for a quadplex and FHA has a minimum house distance if you already own / live in a property. I need to stay within the radius that FHA disqualifies us for in regards to existing home.
Good news, I've spoken to make lenders (FCU's specifically) and actually found one that does "Essential Worker, Zero Down Payment" program that has reduced rates and no rules against already owning houses in the area. Just has a single unit max, live in the unit 1 year, and $750k loan with 0% down. 
But I'll be looking to buy more later and definitely keeping an eye out for pre built ADUs since my ADU that's being built now at my first home took 12 months to permit. Thanks everyone!

CALHFA offers a 0 down program as well, with closing costs financed into the loan for any SFR. And if you’re a first time buyer you get reduced rates. 

[Dave Skow]

@Zach Stiegler- thanks ...assuming you plan to lice in one side of the duplex - you should use a FHA loan as this allows you to put as little as 3.5% of the purchase price ... has your lender / bank offered this as an option ? FHA is a great option for multi fam loans with low down payments ...downside to FHA loans is that there is a large upfront mtg ins fee of 1.75% charged ( that can be added to the new loan ) and also that the monthly mortgage insurance will be permanent ( menaing you have to refinance the loan if you want to have this large fee removed ) - good luck