Buying a Duplex to live in with an FHA mortgage

mortgageporter-seattle-duplex-1One of my favorite blogs to follow, Get Rich Slowly, recently published Reader Stories: I bought a duplex to save money on rent. The author of the post describes how he used an FHA mortgage to buy a duplex and with renting out the unit he was not living in, he wound up paying less for his housing than when he was renting.

Before I bought my first duplex, I was spending $525 per month to rent a studio apartment that consisted of a kitchen, bathroom with stand-up shower, and an all-purpose room that held my bed, dresser, couch, and a small TV placed on top of my file cabinet. After buying, I was now living in luxury. I had two bedrooms, a living room, a spacious kitchen with laundry hookup, and a full bathroom. I was now renting out a one-bedroom apartment below me for $425 per month, and my mortgage payment was $653 per month, which included real estate taxes, mortgage interest and insurance. This meant that my effective cost of housing per month went from $525 while renting to $228 for more space and home ownership.

I’ve written about how to buy a 2-4 plex with minimum down payment using an FHA loan. I thought this would be a good opportunity to revisit buying a duplex for your primary residence (to occupy) using an FHA mortgage.

As of 8:30 am on April 26, 2013, I’m quoting:

3.250% for a 30 year fixed FHA mortgage based on a credit score of 720 or higher and buying a duplex located in the greater Seattle/King County area (apr 4.203%).

Currently there is enough rebate pricing at this rate to cover all of the estimated closing cost, reserves and prepaids so the buyer just needs their 3.5% down payment of $17,500 to buy a duplex priced at $500,000 based on current pricing.  NOTE: pricing below is from April 26, 2013, for current pricing for homes located in Washington, click here.

The total estimated mortgage payment is $3,260.30. I say estimated because we don’t know the exact property taxes or  home owners insurance.

Principal and interest: $2,136.61

Mortgage insurance:       537.86

Est property taxes:        520.83 (I’m using 1.25% of the sales price/12 months)

Est. hazard insurance:     65.00

TOTAL PAYMENT:     $3,260.30

The home buyer can use rental income from the unit they are not going to occupy to qualify for the mortgage.

If you are interested in buying a home, including a duplex, located anywhere in Washington state, I’m happy to help you!


  1. Your “rebate pricing” comment hits on something I’ve been noticing. Maybe I’m getting old, senile and forgetful, but it seems to me that the amount of closing costs required for FHA buyers has been dropping over time, at the same time as the powers that be have been attempting make FHA loans less attractive through changes in MI rates and duration. Is my perception correct? If so, what’s going on? The two movements seem to counter each other.

    • Hi Kary, great question! 🙂

      I believe couple of factors are going here:
      (1) FHA loans have been priced with a good amount of rebate credit (as in this post) which greatly reduces the closing cost, reserves and prepaids. In this post, the rebate at the time I priced the rate covered all of the cost, reserves and prepaids.
      (2) Loan officer compensation regulations that went into effect April 2011 made it so that all rebate credit is provided to the borrower and not to the loan originator.

      Before 2011, it’s very probably that the loan originator was keeping some of the that rebate which is now used to reduce the borrowers closing cost.

      FHA has changed what closing cost the buyers cannot pay for (ie the $300 – $500 that sellers used to get stuck with)… we don’t have any non-buyer cost now (fees the seller would have to pay) with exception to when the property is a flip and if a second appraisal is required – then the seller (or at least NOT the buyer) pays for that.

  2. My wife and I along with our best friends want to build a up scale duplex that both couples will live in as primary residence. Is there financing available for this type of duplex project, and what would the particulars be.

    • Hi Rodger, that sounds like construction financing. You might need to check with a lender who does that type of financing. Be prepared for a significant down payment.

      Another option could possibly be an FHA 203k rehab loan if you find one that’s a “fixer” and needs remodeling/updating.

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