| Single-Family Home | Duplex | |
| Minimum Credit Score | 620 for conventional loans; 500 for FHA loans. The VA does not require a minimum credit score, but most lenders do. | 620 for conventional loans; 500 for FHA loans. The VA does not require a minimum credit score, but most lenders do. |
| Minimum Down Payment | 3% to 15% for conventional loans; 3.5% for FHA loans; 0% for VA loans | 3% to 15% for conventional loans; 3.5% for FHA loans; 0% for VA loans |
| Insurance | Standard homeowners insurance policy | Homeowners and rental property policies |
Minimum Credit Score
Whether you’re buying a single-family home or a duplex, you’ll face the same minimum credit score requirements. But requirements vary by the type of loan you choose. You can apply for an FHA loan with a credit score as low as 500, depending on the amount of your down payment, while conventional and VA loans require a credit score of at least 620.
Minimum Down Payment
The Federal Housing Administration (FHA) backs loans for homes with one to four units and requires a down payment of at least 3.5% of the purchase price. When taking out a conventional loan for a single-family or multi-dwelling home (typically up to four units), you’ll need to make a 3% to 15% down payment. Veteran Affairs (VA) loans do not require a down payment for single-family homes or duplexes as long as the sale price doesn’t exceed the home’s appraised value.
Insurance
A single homeowners policy can cover a duplex if the owner occupies both units. But if you buy a duplex, occupy one unit and rent the other, you’ll need two types of coverage—a home insurance policy and a landlord policy.
The homeowners policy will provide dwelling coverage for both units, plus personal property coverage for your personal items. Landlord insurance includes dwelling coverage and property coverage that protects items used to service the rental unit, like lawn and cleaning equipment. A landlord policy also includes liability protection and may also cover lost rental income if the rental unit sustains damage due to a covered loss.
Note
As a condition of the lease, many landlords require tenants to carry renters insurance.
Preparing To Be a Duplex Landlord
Buying a duplex with the intention of renting one side requires advanced preparation that most first-time homebuyers don’t face. First, research landlord-tenant laws in your area to learn about your responsibilities and rent stabilization restrictions, if any. Also, conduct a market study to find out how much rent other landlords charge.
You will also need to draft a lease agreement and application documents, which should include a:
- Credit check form
- Background check form
- Income verification form
- Rental history form
- References form
An inspection form will also be helpful in documenting the condition of the rental unit. Complete the form during a walk-through with your new tenant before they move in and when they move out. Along with the written report of wear and tear, also take time-and date-stamped photos of the unit to keep on file.
Should You Buy a Duplex as Your First Home?
Buying your first home is a big decision, which leads to greater financial responsibility. Buying a duplex with the intent to rent out one of the units adds the responsibility of running a business to the mix. You must have the time to respond to a tenant’s needs and the funds to maintain the property.
Before buying a duplex, find out if you qualify for any first-time homebuyer assistance programs, offered by federal, state, and local governments. Local Public Housing Authorities offer homeownership vouchers for low-income first-time homebuyers, and the federal government operates the Indian Home Loan Guarantee Program, which provides mortgages for Alaska Natives, American Indians, and Tribally Designated Housing Entities.
The FHA provides loans and insures mortgages for first-time homebuyers, and the VA offers home loans to service members and veterans. In addition, the US Department of Agriculture operates loan programs for rural homebuyers.
Frequently Asked Questions (FAQs)
What’s the difference between a townhouse and a duplex?
A duplex is individually owned but has two residential units, typically side by side, with separate entrances. A townhouse is a single residential unit, individually owned, which typically sits side by side with identical or similar units. Both types of dwellings often have common foundations and walls between units.
How much does a duplex cost?
Many factors determine real estate prices, including:
- The desirability of the neighborhood and its available services
- Comparable home prices within a neighborhood or community
- The duplex’s age, condition, and construction
- The size of the unit and its lot
- The state of the housing market
Home costs can vary widely by location depending on surrounding property value. In addition, a low supply of homes in a market typically drives up prices, while an oversupply of homes can cause prices to plummet.
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