Investing in a duplex or other multifamily property can provide you with a valuable asset, a consistent stream of income, and even a place to live. First, though, it’s important to be aware of all the ins and outs of this property purchasing option. Here are some points to keep in mind as you weigh your decision.

Duplexes, multifamily homes, and commercial properties

A multifamily home is a residential building that contains up to four units where people can live. A duplex is a multifamily home with only two units, which are either placed on separate floors or next to each other on the same floor. Any building with five or more units is generally classified as a commercial residential property and subject to different rules for financing.  

Resident or landlord?

As you consider purchasing a multifamily home, it’s important to know whether you’ll be using one of the units as your own residence or if you’ll simply be overseeing the property as a landlord and an investor. Residence qualifies you for a wider variety of financing resources and more beneficial terms, whereas buying as a landlord will narrow the loan options you can choose from.

Financing options

If you’re purchasing a multifamily property, you could be eligible for a loan from the Federal Housing Administration or the Department of Veterans Affairs — but only if you intend to live there yourself. Writing for The Balance, finance journalist Aly J. Yale notes that FHA loans for multifamily homes typically allow for smaller down payments, boast lower interest rates, and are available to people with poor credit. Meanwhile, current or former military members can take advantage of VA loans, which require no down payment at all and present fewer hurdles for applicants to clear.

Conventional mortgage loan options are available whether or not you’ll be residing in your new multifamily home. However, if you’re purchasing as an investor/landlord, you’ll likely be looking at a higher down payment requirement and a higher interest rate for your conventional loan. According to an article by business reporter Zach Wichter for Bankrate, this is because mortgages for investment properties are typically seen as higher risks for lenders.

Other details to be aware of

As you seek out financing for your multifamily home purchase, one perk could make that task easier. Many mortgage lenders will take your expected rental income into consideration when deciding whether or not you qualify for a loan. As part of this, you’ll need to have renters lined up and signed leases available to show the lender.

There’s also a potential drawback to consider: the appraisal. Depending on where you live, there may not be enough multifamily homes nearby for appraisers to use as comparison points. This could result in an undervaluation for the property, reducing the rental income you can apply to the purchase and raising the down payment you’re required to make.

Purchasing a multifamily home is a major undertaking, and familiarizing yourself with these details will help you navigate the process and determine whether it’s a move that makes financial sense for you.

The information in this article was obtained from various sources not associated with Adirondack Bank. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. Adirondack Bank is not responsible for, and does not endorse or approve, either implicitly or explicitly, the information provided or the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. Adirondack Bank makes no guarantees of results from use of this information.

Source: IMakeNews, Inc.