How to Finance a ‘Two-on-One'

Written by Posted On Thursday, 09 May 2024 00:00

How do you finance a two-on-one? Note first, this type of property is not the same as a duplex. A duplex is two separate living units that share a wall, with one person living in one of the units and another on the other side. A duplex is relatively easy to find financing as pretty much any lender will be happy to help out. A two-on-one, while having two separate living units, they are not attached. Instead, they’re two units occupying the very same lot.

These properties are financed by what is known as ‘portfolio’ lenders. Lenders are portfolio lenders when they lend outside the realm of conventional or government-backed loans. You can find a lender that can finance non-conventional properties through a mortgage broker or mortgage banker that has investors who will finance such properties.

One initial obstacle may be the inability to find similar properties. If there is only one property listed as a two-on-one and no others, the list of lenders will potentially shrink. Lenders want to know if the property they’re financing is relatively popular in the area. This is important because the lender wants to make sure there is some degree of demand for two-on-ones in case the lender is forced to foreclose and reclaim the property. If the property is a one-off, while you can still find lenders who will work with you, the list starts to dwindle and the rates and terms will become less favorable.

The lender will not only need an appraisal to locate similar properties in the area but you’ll also want to contact a home inspector. While an appraiser helps to establish and confirm value, a home inspector will physically visit the property and make observations of any needed repairs or maintenance on the home. While most lenders don’t need a copy of an inspection report, it’s a good idea to have one done anyway.

These properties are similar to an ADU, or an Accessory Dwelling Unit. An ADU is typically characterized by a single family residence sharing a lot with a smaller property. An ADU can be a garage apartment, for example, or what is referred to as a ‘granny flat.’ A two-on-one is two separate, similar-sized homes occupying the exact same lot.

If you’re thinking of investing in a two-on-one, you should contact a lender upfront and let the lender know what you’re thinking about buying. This is the type of property that might provide an unpleasant surprise if your lender is not aware of your plans. Know before you go.

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending. 

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country. 

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