Co-borrowing on duplex when only one borrower lives in unit

[Chris Umbach]

Does anyone have experience with co-borrowing on a duplex, with one borrower who will occupy one unit as a principal/primary residence and renting out the second unit to third parties? I understand the loan generally would be considered a residential loan since: 1) 4 units or less, and 2) one of the borrowers occupies one unit (per Fannie Mae B-2-1-01: Occupancy Types). The co-borrower/tenant would pay FMV rents, less an agreed upon discount for physicially maintaining the property. The other co-borrower would simply put up the 50% of the down-payment (half of 5% conventional financing) and all other income and expense would be split among the co-borrowers/owners 50/50. I guess my concern is that it would create a de-facto partnership or tenancy in common arrangement, and one of the co-borrowers would be renting to themselves personally. I know this is acceptable when renting to yourself as for business purposes. Any incite and examples to my inquiry is appreciated. Thanks BP community!