How to Finance Duplex New Construction with Low Money Down

9 Replies

Hi all,

I have an opportunity to build a new duplex on a lot in an appreciating area. I'd appreciate some expert advice on what the best financing strategy may be. I don't have 20% to put down, so I had initially through FHA (I will live in the property) construction loan, however now I am realizing they only finance 1 unit dwellings.

Does anyone else see a way to do this with low money down? Working with a private bank to see about 10% down with interest only until the property is built.

Thanks all

@Caleb Heimsoth really? that'd be incredible. I kept finding source that said for new construction the FHA only allowed 1 unit dwellings. I'll have to dig a little deeper, because FHA construction loan on a duplex is exactly what I'm looking for, do you have any links I could start looking into?

@Brian McKee. I was saying that for existing homes.  Not sure about New construction 

I am fairly certain they do finance new construction up to 4 units for owner occupied. 

Finding a lender who will do the loan is the harder part. Not all lenders will do the construction loan.

Check with @Andrew Postell . He is In Dallas area and knows more about financing an investment property than most folks. 

@Brice McKee nearly all new construction loans will require 10% down minimums. A standard FHA loan on an existing property is only 3.5% and you can even get a Fannie/Freddie loan with 3% down. If you already own the lot itself then the equity in the lot can be used as your downpayment. You can certainly build a new home with an FHA loan as long as you have the 10% down requirement.

@Rod Cordsen thanks for the mention.  Always appreciated!

@Rod Cordsen Thank you for the follow up and reference. Good to know the construction loans are more difficult.

@Andrew Postell Thank you for this information, thats very helpful. I have the right to refuse on the lot, but have not purchased yet. I want to make sure I could get the construction loan before I actually purchase the lot. 10% wouldn't be as much of a problem as 20%. So if 10% is my option I'll most likely go with that route. 

Is it possible to get that loan before I purchase the lot? and pay 10% down on the lot+construction? Or what would your advice be as far as the process forward?

Much thanks,

Brice

@Brice McKee yes, you should absolutely, 100% be prequalified before purchasing a home.  And if you purchased the lot and the construction at the same time then it would be 10% down of the combined total.  Just curious here, new builds are running considerably higher than existing property here in DFW...is there a specific reason why you want to build over just purchasing an existing property?

@Andrew Postell Thanks for the response. I am going to begin the qualification process this weekend, just need to find the right lender. Do you have any recommendations for Texas in general? The property in question is actually in Austin, and in the particular area I cant find anything comparable within $100k. The properties that are priced well don't even hit the market, while this lot is in a great area and I got lucky with the lead.

@Brice McKee sorry, I don't have any contacts in the Austin area.  Have you tried posting this in the Texas forum?  Maybe try there to see if any locals can help.  Good luck!