Financing a duplex, triplex or fourplex is different from financing a single-family home. Though financing a multifamily property isn’t necessarily harder to do, here’s what you need to know about the process.

Financing a Duplex, Triplex or Fourplex

A multifamily home can be a great investment – it can help you pay off your mortgage faster and save money (especially if it’s an owner-occupied property), and it can help you generate income quickly. But how do you get to that point?

It all starts with financing.

Residential Real Estate Financing

Properties that have four or fewer units are considered residential when it comes to financing (while those with five or more are considered commercial). But your options for financing depend on whether you intend to occupy one of the units.

If you’re an owner-occupant, you may be able to use an FHA loan or a VA loan – both backed by the government – or you may be able to use conventional financing to purchase the home.

If you’re not an owner-occupant, you’re an investor. You’re limited to conventional mortgage loans; you can’t use the other types.

Related: How to start real estate investing with an owner-occupied property

Conforming Loan Limits for Financing a Duplex, Triplex or Fourplex

Conforming loan limits for conventional loans are capped at a certain amount of money. If the property you want to buy costs more than that amount, you need a different type of loan product (commonly called a jumbo loan). You can find the latest conforming loan limits, which are subject to change, here.

The good news about conforming loan limits is that they increase based on the number of units your property has. Larger properties are therefore eligible for higher amounts through conventional loans.

Related: Investing in Campbell, CA real estate

Using Rental Income to Qualify for a Loan

If you’re buying a duplex, triplex or fourplex, you may be able to use your projected rental income from some of the units to qualify for a mortgage. However, usually, the renters must have already signed a lease; you can’t simply walk into the lender’s office and say, “I’m going to charge $2,000 per unit for three units – so you can count an additional $6,000 in monthly income for me.” (And even when you do use rental income to qualify for a mortgage loan, you’ll have to provide documentation of payments, so keep that in mind.)

Some of the income doesn’t apply. Generally, about 25 percent is subtracted from each rental income amount for vacancies and maintenance costs. That means even if you have three tenants each paying $2,000, the lender will likely only count $1,500 from each.

Related: What is rent control?

Down Payments on Duplexes, Triplexes and Fourplexes

If you’re an investor rather than an owner-occupant, you most likely need a higher down payment. (Owner-occupants may be able to buy a duplex, triplex or fourplex with as little as 3 percent down – and if they’re using a VA loan, they may be able to spend even less up-front.)

Are You Buying or Selling a Duplex, Triplex or Fourplex in Silicon Valley?

If you’re selling a duplex, triplex or fourplex in Campbell, Cambrian Park, Los Gatos, San Jose, Santa Clara, Saratoga, Willow Glen or another community in Silicon Valley, we’re here to help. Call today or fill out the form below to find out about our innovative marketing plans that can put your investment property in front of all the right buyers.

If you’re also looking for a new multi-family property for sale or another type of home, check out our: