FHA Loans for a 2–4 Family Home: Live in One, Rent the Rest

Across Rhode Island and nearby Massachusetts, two- and three-family homes are everywhere. For many first-time buyers, an FHA loan on a multifamily is the most affordable way into homeownership: you live in one unit and the rent from the others helps pay the mortgage.

The basics

• FHA loans can be used on homes with up to four units, as long as you live in one of them as your main home, generally for at least a year.
• With a credit score of about 580 or higher, the minimum down payment is 3.5%.
• FHA loan limits are higher for two-, three- and four-unit homes than for single-family homes.
• Lenders can often count part of the expected rent from the other units toward your income.

The extra rule for 3 and 4 units

For three- and four-unit homes, FHA uses a "self-sufficiency" test: roughly, 75% of the rent from all the units must cover the full monthly payment. Some homes pass easily and some don't, so check this before you fall in love with a building.

What to look at before you offer

• Current leases and rents, and what similar units rent for.
• Heating, electrical and plumbing, and whether utilities are separate.
• Lead-safe requirements for rentals in older homes.
• Repairs the FHA appraiser may require before closing.

We help buyers run these numbers on every multifamily they consider. This article is general information, not financial advice; your lender confirms the current rules and what you qualify for.