As Twin Cities realtors, we're often asked, "Can I buy a duplex with an FHA loan?". The answer is yes! In fact, Megan just bought her home with an FHA loan in Saint Paul, Minnesota. Read our blog to learn more about the process of buying a duplex with an FHA loan.

Let us know if you have any more questions, one of our Twin Cities realtors will be in touch as soon as possible!


1. What is an FHA Loan?

FHA loans are insured by the Federal Housing Administration through the U.S. Department of Housing and Urban Development (HUD). The administration insures your loan, so that your loan officer can get you a better deal and help people of all walks of life become homeowners. These types of loans often offer low down payments (as little as 3.5%) and have easier credit qualifications than a typical conventional loan.

2. Buying a Duplex with an FHA Loan 

Buying a duplex with an FHA loan is very similar to buying a regular, single-family home. There are a few extra hurdles, but it can be well worth it! The process starts with getting pre-approved with a lender you trust. We always recommend interviewing 2-3 lenders to find someone who is going to work hard and secure the best interest rate. Make sure the loan officer you intend to work with has the ability to process FHA loans.

A common misconception among buyers is that you need to put 20% cash down in order to purchase a house. In reality, you can put anywhere from 3 percent to 20+ percent depending on your finances. Since the FHA program allows a down payment as little as 3.5%, many first-time homeowners can take advantage of the opportunity to start building equity! 

One thing to consider is that when you purchase a home with a down payment of less than 20 percent, you will be required to pay Private Mortgage Insurance (PMI) until you've put 20% equity into the property. Typically in the Twin Cities, PMI adds around $200-$300 per month onto your mortgage payment depending on the house you are buying and the amount of the mortgage. 

In addition to paying Private Mortgage Insurance, buyers with an FHA loan are required to live in the property for at least one year. 

3. FHA Home Appraisal

In addition to paying Private Mortgage Insurance, buyers looking to purchase a duplex with an FHA loan will require an FHA appraisal. An FHA home appraisal is very similar to an appraisal for a conventional loan and determines an estimate of the market value of the property. The U.S. Department of Housing and Urban Development has a roster of qualified, FHA approved appraisers, that your loan officer will hire as an unbiased third-party to estimate the market value and ensure the property is in good condition. In the event the appraiser finds hazardous items requiring repair, such as peeling paint or loose electrical wires, the sellers will need to mitigate those issues prior to closing.

4. Rental Income 

The real beauty of buying a duplex is the rental income you will earn each month to help pay your mortgage. Whether you're hosting long-term tenants or vacation getaways on Airbnb, your property will generate income, and in turn help you build equity and pay off your mortgage faster. A duplex that is already leased out can also help your loan officer qualify you for a higher loan amount. They will use 75% of the income generated from the current lease when calculating your pre-approval. 

  • Owner-occupied rental property: Live in one unit and rent out the other!
  • Vacation Rental: Renting your property for short term vacation getaways can have high income earning potential. 
  • Long-term Tenants: Having tenants on an annual lease ensures you get rental income each month and there is less variability compared to short term rentals.

5. Tax Benefits

  • You may be able to deduct the following expenses from your tax return:
    • Mortgage Interest
    • Property Tax
    • Operating Expenses
    • Depreciation
    • Repairs
    • Insurance
    • Maintenance
  • For more information, reach out to a licensed tax professional to learn about the different tax benefits for rental real estate property owners. 

6. Housing Flexibility

Owning rental property can open the door to housing flexibility in the future. Perhaps your job gives you the option to work remotely. After living in your duplex for one year, you could rent out your unit while traveling the world. In the meantime, your home is generating rental income to help pay off your mortgage--and maybe your vacations! The rental income earned on in your duplex could also help fund your next property!  


Email us any questions you have about buying a duplex with an FHA loan in Minneapolis, Saint Paul, or any of the surrounding communities.

One of our Twin Cities realtors will be in touch as soon as possible.