Duplex Loans, 2-4 Unit Financing…Explained

Single family homes, condominiums, planned unit developments….. and then there’s 2 to 4 unit properties, often called duplexes, tri-plexes and four-plexes. A 2-4 unit property is the oddity of the various property types, it’s this property type that has the most confusion when it comes to securing mortgage loan financing. People think a single-family residence with a granny unit is considered a duplex and it’s not, as a result, rents on granny units cannot be used for mortgage loan qualifying.

Here’s why…

A 2-4 unit property is a quasi mini-apartment complex however, it still considered to be residential making it eligible for the best fixed-rate mortgage financing through Fannie Mae and Freddie Mac.

*For our purposes, a unit is defined as an area that contains at least one bedroom, a full working kitchen and bathroom. As long as a unit has these three components, it’s considered to be a unit for income qualification purposes. So as long as the property is zoned as one of the following:

  • two units
  • three units
  • four units

If the property is zoned as a single-family residence, the single-family zoning takes precedence even it there is a granny unit and the income from the granny unit cannot be used to secure a mortgage, purchase or refinance.

Following are unique characteristics of duplex loans and 2 to 4 unit financing.

*Whether purchasing or refinancing, the interest rate and/or costs of the loan will always be a bit higher on any property with more than one unit when it comes to securing a mortgage. Fannie Mae and Freddie Mac charge a risk-based premium into how these loans are priced making these loans cost more than single-family residence financing.

*The income from the additional units can be used to help you qualify for purchasing or refinancing the property. In other words, 75% of the gross rents received per unit can be used to offset the total monthly mortgage payment in qualifying for a home loan.

*2-4 Unit appraisals always cost more because a comparable market survey has to be included for the additional units. If the additional units are not presently rented, income can still be used for these because the lender has a 25% vacancy factor in securing your new mortgage loan.

*If you are considering purchasing a multiple unit property for investment purposes, and have no history of being a land lord your lender will have to obtain an exception from underwriting-as it is now a Fannie Mae /Freddie Mac requirement that there is a 12 month history of being a landlord

*If you are completing a refinance transaction on your duplex the following parameters will be also examined:

→An operating income statement will not be required if the rental income from the duplex is used in qualifying for the loan or if the borrower has owned the duplex for at least one year and reports the property on their Schedule E of their federal income tax return.

→An operating income statement will be required if the rental income from the duplex is used in qualifying and the borrower has owned the property less than one year and did not report the rental income on their Schedule E.

In other words, if you want to refinance with a duplex loan, report the property under your Schedule E. for the easier refinancing route.

If you presently have a 2-4 unit property and need to refinance, you can still look at 30 year fixed rates in the low 4’s. Purchasing a 2-unit property with mortgage loan financing will still enable you to cash flow, over and above the total mortgage payment.

Get qualified online for a 2-unit property financing. Find mortgage information on Duplex Loans and 2-4 Unit Financing.


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