Utah Duplex Mortgage Loans

The process involved with purchasing a duplex is similar to what is involved with buying a single-family home but with a major caveat. 

Before you apply for a duplex mortgage in Utah, you’ll need to decide whether you plan to live in one unit of the duplex or instead live elsewhere while collecting rent from both units. Your decision about whether or not to live in the duplex will control the types of mortgage loans you can get.

Let’s dive into the nuances of duplex mortgages in Utah, and the key factors lenders consider when approving loans for these properties. Or, if you’re ready to get a duplex loan rate quote, click below!

Duplex vs. Multi-Family

A duplex is a single property that is divided into two separate units. Each separate living space has a dedicated entry. Some duplexes also have separate outdoor spaces, driveways, and garages.

A duplex is considered to be a single home with two units. The buyer only needs to get one mortgage to purchase the property.

While some people refer to duplexes as multi-family housing, they are instead considered to be single-family, multi-unit housing for mortgage purposes. Multi-family housing instead includes buildings with at least five units, making them commercial property. By contrast, you can buy a duplex with a residential mortgage instead of a commercial mortgage if you plan to live in one of the units.

Living in a Duplex vs. Living Somewhere Else While Collecting Rents

You can purchase a duplex to live in as an owner-occupant or instead choose to purchase a duplex and rent out both units. There are pros and cons of each choice.

Pros of Buying a Duplex as an Owner-Occupant

There are several advantages to buying a duplex as an owner-occupant. In this scenario, you will need to live in one unit of the duplex while renting out the second unit.

The advantages of buying a duplex as an owner-occupant include:

• More mortgage options with simpler financing
• Can use rent from the second unit to pay the mortgage while living almost for free in the one you occupy
• Will only have to share a single wall with your tenants
• Way to begin building rental income

Cons of Buying a Duplex as an Owner-Occupant

Just like buying a duplex as an owner-occupant has several advantages, it also involves several disadvantages, including:

• Will be responsible for repairs and maintenance in both units
• Might dislike your tenants
• Less privacy
• Accessible to your tenants most of the time

Pros of Buying a Duplex as an Investment While Living Elsewhere

If you purchase a duplex as an investment property and live elsewhere, you can enjoy the following advantages:

• Receive rent from both units for an increased cash flow
• Won’t be as accessible to your tenants
• More privacy/won’t share a wall

Cons of Buying a Duplex as an Investment While Living Elsewhere

The disadvantages of buying a duplex as an investment property while living elsewhere include:

• Fewer mortgage options
• Will likely need a larger down payment
• Might need more cash reserves
• Might have to submit additional documentation
• Might need a higher credit score

Buying a Duplex: Owner-Occupied vs. Investment Property While Living Elsewhere

Your financing options will differ based on your decision about whether you intend to live in one of the units or instead live elsewhere.

Duplex Mortgage Options in Utah for Owner-Occupied Properties

If you will live in one of the units, you will have more mortgage options available. People buying owner-occupied duplexes are eligible for government-backed mortgages with lower downpayment and credit requirements. However, the tradeoff is that you will be required to live in the duplex for a minimum of one year as your primary residence.

Financing a duplex as an owner-occupied property is pretty similar to financing a single-family home.

Conventional Owner-Occupied Duplex Mortgage Loan

Conventional duplex mortgages for owner-occupied properties are offered by lenders and are not guaranteed by federal agencies. These mortgages typically have more stringent credit requirements than government-backed mortgages and might also require down payments of at least 15%. If you get a conventional mortgage to buy a duplex as an owner-occupied property, you’ll have to pay private mortgage insurance (PMI) if your downpayment is less than 20%. Your PMI obligation will continue until the loan-to-value (LTV) ratio is 80%.

Conventional mortgages for owner-occupied duplexes are also subject to the conforming loan limits set by the Federal Housing Financing Agency (FHFA) each year. In 2023, the baseline conforming loan limit for duplex mortgages in Utah is $929,850. There are certain counties in which the conforming loan limit is higher because of a higher cost of living, however. For example, the conforming loan limit for a two-unit home in Summit County in 2023 is $1,394,775.

FHA-Backed Duplex Mortgage

FHA-backed mortgages are insured by the Federal Housing Administration (FHA). The FHA does not issue the loans, however. Instead, they are issued by banks and other financial institutions with FHA backing. The FHA guarantees the loans, which means if the borrower defaults, the FHA reimburses the lender. This significantly lowers the risk and incentivizes financial institutions to approve mortgage applications.

While an FHA-backed mortgage can be a good option, you’ll be required to pay mortgage insurance for the life of the loan if your down payment is less than 10%. If your downpayment is larger than 10%, the mortgage insurance will end after 11 years. The property will also need to meet the conforming loan limits. However, the required down payment is much smaller, and the credit requirements are less stringent than for conventional mortgage loans. A down payment for an FHA-backed duplex mortgage can be as little as 3.5% with a credit score of 580 or higher. However, most lenders require credit scores of at least 620.

VA-Backed Duplex Mortgage Loan

The U.S. Department of Veterans Affairs (VA) backs VA mortgage loans. Only military service members, veterans, and surviving military spouses are eligible for VA-backed mortgages. Like FHA mortgages, VA mortgages are not issued by the VA. Instead, the VA guarantees these loans and will repay the lender if the borrower defaults.

If you qualify for a VA-backed mortgage, it can be a good option if you plan to purchase a duplex as an owner-occupied property. VA-backed mortgages have no down payment requirements, and you won’t have to pay mortgage insurance. However, you will have to pay an upfront funding fee, which will be based on your down payment and if you’ve used a VA loan in the past.

Mortgage Options for Duplexes as Investment-Only Properties

If you want to buy a duplex as an investment property and don’t intend to live in one of the units as your principal residence, your mortgage options will be more limited. You won’t be able to get a government-backed mortgage.

You’ll need to make a higher down payment to get a conventional mortgage to invest in a duplex without living in it. Typically, you should expect to make a down payment of as much as 25%. The lender might also require additional documents that demonstrate the property’s profitability, including occupancy rates and local rents.

FHA and VA loans are not available for buying a duplex as an investment without living in it. Instead, both programs require buyers to live in the property they buy as a principal place of residence for at least one year.

Investment mortgages have interest rates that are higher than mortgages for owner-occupied properties. Throughout the life of the mortgage, this means you could pay thousands more in interest. Investment loans also require borrowers to have more money in cash reserves. This is because lenders want to make sure buyers will be able to make their mortgage payments even when their units remain unoccupied. Most lenders will want to see that you have six months’ reserves to cover the principal, interest, tax, and insurance (PITI) for the mortgage before they approve your application.

Using Rental Income Projections to Qualify

One nice thing about duplex mortgages in Utah is that you can use projected rental income to qualify for the loan. The appraiser will assess how much rent each until will likely bring in, the property’s condition, the characteristics of the neighborhood, and comparable rental properties in the neighborhood. Fannie Mae allows the buyer to include 75% of the projected market rent in their income to qualify for a duplex mortgage.

For example, if you plan to live on one side of the duplex and rent out the other unit, you’ll be able to count 75% of the projected market rent for the available unit. If your total mortgage payment would be $2,000, and you could rent out the other unit for $1,500, you could count $1,125 towards your income. This would help to lower your debt-to-income (DTI) ratio.

Talk to City Creek Mortgage

Buying a duplex in Utah can be a good way to invest in real estate and begin building your portfolio. If you plan to live in one unit while renting out the other side, the process will be similar to what you would undergo when buying a single-family home. However, if you want to buy a duplex solely as an investment and plan to live elsewhere, it’s still possible to finance your purchase with a mortgage. To learn more about your options and what might make the most sense for you, schedule an appointment with the mortgage experts at City Creek Mortgage by calling 801-501-7950.