Credit-worthiness: buying a single-family home/condo vs. a duplex/multi-family home

Asked by Oliver, San Mateo, CA Mon Oct 11, 2010

i am wondering how does buying a duplex/multi-family home compare to buying a single family home/condo when it comes to the amount of money a bank will loan me? How does the additional income I will realize from renting an aditional unit influence my soundness and credit-worthiness? Are there any rules of thumb how banks treat the fact that I may have a second unit to rent out? Does anyone have examples?

Thanks in advance.

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Mon Oct 11, 2010
Most of what Helen has told you, from a financing standpoint, is mostly not correct. The one exception is on a condo with less than 20% down, however with the right lender you can break that up to a 75% first mortgage and a 5% second. If you are planning on FHA, then those percentages are both irrelevant. As far as a single-family purchase, if you are putting down 20% and have a credit score above 740, you will get a great rate. Most people don't put down 40%, so we won't talk about the bonus you get for a low loan-to-value.
As far as financing, you can do a 1-4 family on FHA for the same interest rate. As far as a conventional loan goes, your rate will be higher on a 2-4 family owner-occupied no matter what.
As far as how the rent will help you, you can take 75% of the rent and add that to your income to qualify. Why not speak to a qualified loan officer in your area to see what options they give you.
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Helen Kwong, Agent, Berkeley, CA
Mon Oct 11, 2010
Hi Oliver,

To be honest, in order to answer your question more thoroughly and in depth and to help you weigh out the pros and cons on each scenario. It will take more than the answer I am providing at this point.

I will do my best simplifying my answers:
If you are planning to purchase a SINGLE FAMILY HOUSE or CONDO:
- Most lenders require a minimum of 25% of down payment in order to get a good interest rate for a 30 yr. fixed loan. Recently I have closed a deal connected my buyer to one of the major bank loan specialist and closed at 4% interest rate. But if your down payment is under 25%, the interest rate will tend to go higher.
- In compare to a duplex or multi unit complex under 4 units, you will have an easier time getting the loan from most major lenders if your tax records and financial information get approval from them.
- If you are thinking of putting in up for sale in future, ratio wise you will have more potential buyers that will be interested and will qualify for a loan to purchase your single family home or condo.
- Additional note for you, and that is from passed 40 to 50 yrs real estate statistics, single family homes' equity goes up almost double than condos' equity in the Bay Area.

If you are planning to purchase MULTI-UNIT COMPLEX:
- Most major lenders are more strict with the qualifications. The minimum % of down payment is higher than single family and condo. Since the lenders see it as income properties. If they loan you the money, they are have more risk in not getting the loan back if you cannot rent out the units....etc.
- After you purchase the multi unit complex, if you can continue to have tenants occupied them, then you can show steady and/or good income. That will be good for future sale when you do put them on the market. But in general the ratio for buyers that can qualified for a loan to purchased multi unit complex are much lower in comparison to single family house or condo.

Lastly, you need an experienced realtor who have deal with many of this situation and have a wide network of professionals to help answer all your questions, so you have all the necessary information to weigh out what's best for your investment. Please check out my website:

Hope my answer help.

Have a good day!

Helen Kwong, Realtor@
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