Can You Get an FHA Loan for a Multi-Unit Property?

FHA loans have helped millions of Americans achieve homeownership with their low down payment requirements and flexible credit standards. But can you get an FHA loan for a multi-unit property? The answer is yes, and this strategy has become one of the most popular ways for first-time investors to break into real estate while keeping their housing costs low.

FHA loans allow you to purchase properties with two, three, or four units, as long as you plan to live in one of the units as your primary residence. This opens the door to a powerful wealth-building strategy that combines homeownership with rental income.

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What Types of Multi-Unit Properties Qualify for FHA Loans?

FHA loans can be used to purchase duplexes, triplexes, and fourplexes. Each unit in the property must be self-contained, meaning it has its own entrance, kitchen, bathroom, and living space. Properties with five or more units do not qualify for FHA financing and require commercial loans instead.

The property can be a traditional apartment-style building, a converted house with multiple units, or a purpose-built multi-unit structure. Mixed-use properties that include commercial space may qualify if the residential portion makes up at least 51% of the total square footage and the commercial space does not exceed 25% of the total floor area.

FHA loan limits vary based on the number of units and the county where the property is located. High-cost areas like San Francisco, New York, and Los Angeles have significantly higher limits than rural areas. The 2024 FHA loan limits range from $472,030 for a single unit in low-cost areas to over $2 million for a four-unit property in high-cost markets.

These higher loan limits for multi-unit properties reflect the increased value and income potential of these investments. A fourplex in a high-cost area can be financed with up to $2,095,200 in FHA loan proceeds, making this program viable even in expensive real estate markets.

What Are the Down Payment Requirements for FHA Multi-Unit Loans?

One of the biggest advantages of FHA loans for multi-unit properties is the low down payment requirement. You can purchase a two, three, or four unit property with just 3.5% down if your credit score is 580 or higher.

For a $500,000 duplex, the minimum FHA down payment would be $17,500. Compare this to a conventional loan, which would require $75,000 to $125,000 down for the same property. This dramatic difference in upfront cash requirements makes FHA the preferred choice for many first-time multifamily buyers.

If your credit score falls between 500 and 579, you can still qualify for an FHA loan, but the down payment requirement increases to 10%. Credit scores below 500 generally do not qualify for FHA financing.

The down payment can come from multiple sources, including savings, gift funds from family members, down payment assistance programs, or proceeds from the sale of another property. FHA loans are more flexible about gift funds than conventional loans, allowing 100% of your down payment to come from an acceptable gift source.

Understanding the full picture of how much to put down on a commercial building helps you compare FHA options with other financing alternatives.

What Credit Score Do You Need for an FHA Multi-Unit Loan?

FHA loans have some of the most flexible credit requirements available for multi-unit property financing. The minimum credit score for the 3.5% down payment option is 580, which is significantly lower than most conventional loan programs require.

Borrowers with credit scores between 500 and 579 may still qualify with a 10% down payment, though finding lenders willing to work with scores in this range can be challenging. Most FHA-approved lenders set their own minimum credit requirements, often requiring 620 or higher even though FHA guidelines allow lower scores.

Your credit history matters beyond just the score number. FHA underwriters look at your payment patterns over the past 12 to 24 months. Recent late payments, collections, or derogatory accounts can complicate your approval even if your score meets the minimum threshold.

Bankruptcies and foreclosures do not permanently disqualify you from FHA loans. Chapter 7 bankruptcy requires a two-year waiting period, while Chapter 13 bankruptcy may allow earlier qualification with court approval. Foreclosures require a three-year waiting period before you can apply for a new FHA loan.

If your credit needs improvement, taking 6 to 12 months to repair your score before applying can save you thousands in interest and potentially allow you to qualify for a larger loan amount.

How Does the FHA Self-Sufficiency Test Work?

One unique requirement for FHA loans on three and four unit properties is the self-sufficiency test. This calculation ensures that the rental income from the property can support the full mortgage payment without requiring additional income from the borrower.

To pass the self-sufficiency test, 75% of the total rental income from all units, including the unit you will occupy, must equal or exceed the total monthly mortgage payment. The mortgage payment includes principal, interest, taxes, insurance, and any HOA fees.

For example, if you are purchasing a fourplex with a projected monthly mortgage payment of $4,000, the property must generate at least $5,334 in total monthly rent across all four units. At 75%, this equals $4,000, which covers the mortgage payment.

The self-sufficiency test exists because FHA wants to ensure borrowers are not overextending themselves on larger multi-unit properties. Duplexes are exempt from this requirement because they represent a smaller financial commitment.

If a property fails the self-sufficiency test, you have several options. You may be able to negotiate a lower purchase price, which reduces the mortgage payment. Alternatively, you might consider a different property with higher rental potential or explore non-FHA financing options like DSCR loans.

What Property Standards Must FHA Multi-Unit Properties Meet?

FHA has strict property condition requirements known as Minimum Property Standards (MPS). These standards ensure the property is safe, structurally sound, and livable. Properties that do not meet these standards cannot be financed with FHA loans unless repairs are completed.

Common issues that can cause FHA appraisal problems include peeling paint (especially in homes built before 1978 due to lead paint concerns), missing handrails, broken windows, roof damage, faulty electrical systems, plumbing problems, and foundation issues.

Each unit must have functioning heating, cooking facilities, and bathroom fixtures. The property must have adequate water supply and sewage disposal. All mechanical systems must be operational and have remaining useful life.

The FHA appraiser will note any conditions that do not meet minimum standards. These must be repaired before closing, either by the seller or through an FHA 203(k) rehabilitation loan that finances both the purchase and repairs.

For properties needing significant work, the FHA 203(k) program allows you to borrow up to 110% of the property's after-repair value. This can be an excellent strategy for purchasing distressed multi-unit properties that need renovation before they can generate market rents.

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How Does FHA Calculate Rental Income for Qualification?

FHA allows you to use projected rental income from the units you will not occupy to help qualify for the loan. This is one of the most powerful features of FHA multi-unit financing, as it can significantly increase your purchasing power.

The lender will order an appraisal that includes a rental analysis. The appraiser determines fair market rent for each unit based on comparable rentals in the area. If the property has existing tenants with leases, those rents may be used if they fall within the appraiser's market rent range.

For qualification purposes, lenders use 75% of the projected rental income. This 25% reduction accounts for potential vacancy and collection losses. The adjusted rental income is added to your other qualifying income when calculating your debt-to-income ratio.

For example, if you are buying a triplex where two units rent for $1,500 each ($3,000 total), the lender would add $2,250 (75% of $3,000) to your monthly qualifying income. If you earn $5,000 per month from your job, your total qualifying income becomes $7,250.

This rental income offset can transform an unaffordable purchase into a manageable one. Many buyers find they can qualify for a multi-unit property when a single-family home at the same price would have been out of reach. Learn more about the various multifamily property loan options available to you.

What Are the Occupancy Requirements for FHA Multi-Unit Loans?

FHA requires that you occupy one of the units as your primary residence. This is not negotiable. You must move into the property within 60 days of closing and live there for at least 12 months.

The occupancy requirement means FHA loans cannot be used for pure investment properties where you do not plan to live. However, after the initial 12-month occupancy period, you may convert the property to a full investment and move elsewhere, though you would not be able to get another FHA loan for a primary residence until you sell or refinance.

FHA monitors occupancy compliance, and misrepresenting your intent to occupy is mortgage fraud, a federal crime. Lenders verify occupancy through various means, including checking the address on your tax returns, utility bills, and voter registration.

There are limited exceptions to the 12-month occupancy rule. Job relocations of more than 100 miles, significant family size changes, or other qualifying life events may allow earlier departure. These exceptions require documentation and lender approval.

For investors who do not want to live in their multi-unit property, conventional loans, DSCR loans, or commercial financing offer alternatives without occupancy requirements. However, these options require higher down payments and may have stricter credit standards.

What Mortgage Insurance Costs Should You Expect?

FHA loans require mortgage insurance regardless of your down payment amount. This insurance protects the lender if you default and is a significant cost factor to consider when comparing FHA to other loan options.

FHA mortgage insurance has two components: an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP). The upfront premium is 1.75% of the loan amount, which can be financed into the loan. For a $500,000 loan, this adds $8,750 to your loan balance.

The annual MIP depends on your loan term, down payment, and loan amount. For most borrowers putting down less than 5%, the annual MIP is 0.85% of the loan balance, paid monthly. On a $500,000 loan, this equals approximately $354 per month.

Unlike conventional PMI, which can be removed once you reach 20% equity, FHA mortgage insurance remains for the life of the loan if you put down less than 10%. With a down payment of 10% or more, MIP can be removed after 11 years.

Many borrowers plan to refinance into a conventional loan once they have built sufficient equity to eliminate the ongoing MIP payments. This strategy makes sense once you have 20% equity and can qualify for conventional financing based on the property's value and your financial situation.

How Long Does the FHA Multi-Unit Loan Process Take?

FHA loans for multi-unit properties typically take longer to close than conventional loans due to additional requirements and the more thorough appraisal process.

Expect the process to take 45 to 60 days from application to closing, though it can extend to 90 days if issues arise with the appraisal or underwriting. Having your documentation ready before you apply can help streamline the timeline.

The FHA appraisal is often the longest step in the process. FHA appraisers must be specifically certified, and there may be limited availability in some markets. The appraisal itself is more detailed than a conventional appraisal because it must verify the property meets Minimum Property Standards.

If the appraisal identifies required repairs, the timeline extends further. Repairs must be completed, and the appraiser must verify completion before the loan can proceed. Complex repairs may require multiple inspections.

Working with a lender experienced in FHA multi-unit loans helps avoid common delays. These lenders understand the unique requirements and can guide you through the process more efficiently. They also often have relationships with FHA appraisers who can complete inspections more quickly.

What Are the Advantages of FHA Multi-Unit Loans?

FHA multi-unit loans offer several compelling advantages that make them attractive for first-time investors and buyers with limited savings.

The low down payment requirement is the primary advantage. Being able to purchase a multi-unit property with just 3.5% down dramatically reduces the barrier to entry for real estate investing. This allows you to preserve cash for renovations, reserves, or other investments.

Flexible credit requirements make FHA accessible to buyers who might not qualify for conventional financing. The 580 minimum credit score opens doors that would otherwise be closed.

The ability to count rental income toward qualification helps buyers afford more expensive properties than they could with a single-family home. This income offset can be the difference between qualifying and being denied.

FHA loans also offer competitive interest rates, often comparable to or slightly better than conventional rates. Combined with the low down payment, this creates an affordable path to multi-unit ownership.

For those looking at larger properties, our guide on getting a mortgage on an apartment building explains options beyond the FHA 4-unit limit.

What Are the Disadvantages and Limitations?

Despite their advantages, FHA multi-unit loans have limitations that may make them unsuitable for some buyers.

The mortgage insurance requirement adds significant cost over the life of the loan. For a $500,000 loan, you will pay nearly $9,000 upfront plus over $4,000 per year in ongoing premiums. Over 10 years, this totals more than $50,000 in insurance costs alone.

The 4-unit limit means FHA cannot finance larger apartment buildings. If you are looking at a property with five or more units, you will need commercial financing, which has different requirements. Our guide on what kind of loan to buy an apartment building explores these options.

Property condition requirements can be problematic for buyers interested in fixer-uppers or distressed properties. Many multi-unit properties on the market need work, and FHA's strict standards may disqualify them without significant repairs.

The occupancy requirement limits FHA's usefulness for investors who do not want to live in their properties. If house hacking does not fit your investment strategy, you will need to explore conventional or commercial financing.

Loan limits may be insufficient in high-cost markets, even with the higher limits for multi-unit properties. In expensive areas, the FHA maximum may not cover the purchase price of the properties you want to buy.

How Can You Maximize Your FHA Multi-Unit Investment?

Strategic planning helps you get the most value from your FHA multi-unit purchase. Consider these approaches to maximize your investment.

House hacking is the foundational strategy. By living in one unit and renting the others, you can dramatically reduce or eliminate your housing costs while building equity. Many house hackers live rent-free or even generate positive cash flow.

Choose properties with value-add potential. Units with below-market rents, deferred maintenance, or unused space offer opportunities to increase income and property value after purchase. Even small improvements can justify rent increases that improve your return.

Use our commercial mortgage calculator to analyze different purchase scenarios and understand your potential cash flow.

Plan for eventual refinancing. Once you have built 20% equity through payments and appreciation, refinancing to a conventional loan eliminates FHA mortgage insurance and reduces your monthly costs. This typically makes sense after 3 to 5 years of ownership.

Consider future expansion. Your FHA multi-unit property can become the foundation of a larger real estate portfolio. The equity you build and experience you gain position you for conventional or commercial financing on future purchases.

Network with other investors and property managers in your area. Learning from experienced landlords helps you avoid common mistakes and identify opportunities. Local real estate investment groups often have members who started with FHA multi-unit properties.

Ready to Start Your FHA Multi-Unit Journey?

FHA loans provide an accessible path to multi-unit property ownership for buyers willing to live in one of the units. The combination of low down payments, flexible credit requirements, and rental income qualification creates opportunities that conventional financing cannot match.

Whether you are considering a duplex for your first investment or a fourplex to maximize cash flow, FHA financing deserves serious consideration. The mortgage insurance costs are real, but for many buyers, they are a worthwhile trade-off for the reduced upfront investment.

If you want to learn whether you can use FHA for properties with five or more units, check out our guide on FHA 5-unit property rules and understand why the line is drawn at four units.

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Our team specializes in FHA multi-unit financing and can help you understand your specific options. We will analyze your financial situation, explain the requirements, and guide you through the application process. Contact us today to explore how FHA can launch your real estate investment journey.