How to finance and live in a two-family home


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Ask a Lender
January 11, 2017 | Updated September 20, 2017


Investment-loan-duplex-two-families

Key Points

Benefits of financing a two-family home

  • Properties with less than five units are considered residential, not commercial.
  • Two-family residences can qualify for FHA or VA loans.
  • You may be able to list rental income on your loan application if leases are signed.

Have you ever thought about becoming a landlord? If you’re looking to buy a home to live in, consider purchasing a two-family home, also known as a duplex. By renting out the other unit, you’ll be earning rental income that can help you get more house than you could otherwise afford.

If you decide to seek out a two-family home to live in, you’ll need to find financing. Financing for an owner-occupied two-family home is a little different than for a single-family home. Here are some tips on owning, living in and financing a two-family home.

Financing impacts

One of the major considerations when financing any multifamily residence is whether the owner of the property will occupy one of the units, which makes it an “owner-occupied” property. This will affect what kinds of loans you are eligible for.

Another consideration is the number of units the property has. Properties with one to four units available for occupancy are considered residential properties. Properties with five or more units are considered multifamily commercial properties, and can’t be financed with a conventional loan.

If you intend to occupy one of the two units in a two-family residence, you will likely qualify for financing through either the Federal Housing Administration (FHA) or the U.S. Department of Veteran Affairs (VA).

With an FHA loan, you only have to make a 3.5 percent downpayment. For a VA loan, you could qualify for a zero-downpayment loan.

Eligibility for VA home loans can depend on your length of military service, duty status and character of discharge or service — with the eligibility bar being quite high in the case of a dishonorable discharge. Credit and income requirements also are necessary components of some VA loan products.

Rental income

Can you use rental income to help you qualify for a loan? It depends.

Usually, the existing renters must have already signed a lease in advance of the loan so the rental payments can be verified. Some lenders may conduct a market analysis to estimate the rent, but generally speaking, lenders won’t lend more money unless they can verify the rental income.

Some lenders place other restrictions on multifamily loans. For example, they may not include rental income if the buyer doesn’t have any previous experience as a landlord.

Risks to consider

One of the biggest risks in financing a two-family home is that you won’t be able to find a renter to occupy the vacant unit. Don’t count on rental income to help you make the mortgage payment. Ensure you can afford to make the mortgage payment on your own if necessary.

Also keep in mind that by renting out the vacant unit, you become a landlord — a role that comes with many responsibilities, such as collecting rent and making necessary repairs. If that sounds like a headache, you could work with a property management company, which will perform all the landlord duties for you in exchange for a monthly fee. Going that route, however, will cut into your rental income. Depending on the numbers, however, it could be worth it for convenience’s sake.

You also may be required to occupy the home for a certain period of time. This could be a problem if you want to eventually move out of the unit, rent it out and move into a larger home.

Financing and living in a two-family home can come with many rewards. It helps you afford a more expensive house, and the rental income can help you build equity in the property more quickly. Just make sure you’re ready to be a landlord, and don’t count on the rental income in case you can’t find a tenant. With that advice in mind, you will be well on your way to investing in your first multifamily property.


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