Yes, you can use an FHA loan to buy a multifamily property with up to four units (duplex, triplex, or fourplex). It is an excellent option for house hacking, requiring a low down payment (3.5%) and allowing you to use projected rental income from the other units to qualify, provided you live in one unit for at least one year.
FHA loans allow you to purchase a multifamily home anywhere from one to four units. That means you can use the loan to buy a single-family home with up to four separate units. However, one of the requirements is that the home needs to be your primary residence.
An FHA multifamily loan can purchase properties with up to four units, including duplexes (2 units), triplexes (3 units), and fourplexes (4 units). These types of properties allow buyers to live in one unit while renting out the others, providing the opportunity to generate rental income.
FHA Multifamily Loan Requirements
10% down payment with a FICO® score of 500 – 579. 3.5% down payment with a FICO® score higher than 580. A debt-to-income ratio of less than 43% Make one unit your primary residence for at least a year.
The FHA 85% rule refers to a past guideline for cash-out refinances limiting the loan to 85% Loan-to-Value (LTV) and a specific rule for identity-of-interest transactions (like buying from family) where borrowers couldn't finance more than 85% of the home's value unless exceptions applied, such as renting from the family member for at least six months prior. While the general cash-out LTV is now 80%, the 85% rule still applies to certain related-party sales, requiring a 15% down payment unless an exception is met, notes FHA.com.
Eligible borrowers can use a 0% down VA loan for properties with up to four units. Various financing strategies enable purchasing multifamily properties with little to no personal money upfront.
Key Takeaways. The down payment for a $300K house ranges from $0 to $10,500, depending on the loan type. Conventional loans allow 3% down ($9,000), while FHA loans require 3.5% down ($10,500). VA and USDA loans offer $0 down options, but eligibility depends on military service, location, and income limits.
The main cons of FHA loans are mandatory Mortgage Insurance Premiums (MIP) – both upfront and annual, which can last for the life of the loan or 11 years depending on down payment. Other downsides include strict property standards, lower loan limits in high-cost areas, higher long-term costs (especially with good credit), and limitations to primary residences only, which can make them less appealing to sellers and buyers with excellent credit seeking better conventional loan terms.
To afford a $1 million house with a 20 percent down payment and a 6.5 percent mortgage rate, you'll need about $218,000 in annual income. A common housing-affordability guideline states that you shouldn't spend more than 28 percent of your monthly income on housing-related costs.
Buying a multifamily property or apartment building for the first time can be very tricky and confusing, especially if you're a new real estate investor. Here are the basic steps you need to take when buying your first multifamily investment property, as explained by top real estate professionals in Long Beach, CA.
Multifamily properties are ideal for the BRRRR strategy because they offer multiple income streams from a single investment. Distressed or undervalued properties in growing markets are also suited to this method. Look for properties where renovations can significantly boost the rent and property value.
The traditional FHA mortgage program can be used to buy a property with up to four units if the owner uses it as their primary residence. Certain homebuyers use this option to buy duplexes, triplexes or fourplexes/quadplexes.
That said, if your plan is to buy a single-family home, live in it for a year, and then turn it into a rental, this can also work well, especially in high-demand areas like Southern California, where rental returns are solid.
FHA loan program down payment minimums are 3.5% for borrowers with FICO scores at 580 or better. FHA loan program rules for borrowers with FICO scores between 500 and 579 require a 10% down payment, but nothing as high as 20%.
FHA loans do not directly cover closing costs. However, they do allow for various options that borrowers can use to pay them including seller concessions, financial assistance programs, and gift funds. Closing costs for FHA loans are generally 3%-6% of your loan amount.
The 1% rule states that for a property to be a good investment, the monthly rent it generates must be at least 1% of the home's purchase price. This is not a guarantee of profit. Investors should carefully consider the purchase of any property before moving forward.
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