What Is FHA Loan?
FHA loans are the go-to financing for house hacking — live in one unit, rent the others, and qualify with 3.5% down if your credit score is 580+. You pay mortgage insurance (1.75% upfront, 0.55% annual) but get into a duplex or fourplex with $14,000 down on a $400,000 property instead of $100,000 for a conventional investment loan. The catch: you must occupy the property for 12 months, and 3–4 unit properties must pass a self-sufficiency test (rent covers the full mortgage). Our house hacking guide and small multifamily guide walk through the full playbook.
An FHA loan is a government-insured mortgage that lets qualified borrowers buy 1–4 unit properties with as little as 3.5% down — as long as they live in one unit as their primary residence for at least 12 months.
At a Glance
- 3.5% down with 580+ credit; 10% down with 500–579 (many lenders require 620+)
- 1–4 units, owner-occupied; you must live there 12 months
- MIP: 1.75% upfront + 0.55% annual (30-year, <5% down)
- 2026 limits: $541,287–$1,249,125 (1-unit, varies by county)
- 3–4 unit: self-sufficiency test — 75% of rent must cover PITI
How It Works
The basics. FHA doesn't lend — it insures loans made by approved lenders. That insurance lets lenders offer low down payments and looser credit requirements. You're buying a 1–4 unit property and living in it. Duplex, triplex, fourplex — all eligible. The LTV can go to 96.5% (3.5% down). On a $350,000 fourplex, that's $12,250 down plus closing costs. Conventional investment? 25% — $87,500. That gap is why FHA dominates the house-hack conversation.
MIP — the trade-off. You pay for that low down payment with mortgage insurance. Upfront: 1.75% of the loan amount, usually rolled into the loan. Annual: 0.55% of the balance, split across 12 monthly payments. On a $338,750 loan (3.5% down on $350K): ~$5,928 upfront (added to balance), ~$155/month in MIP. With less than 10% down, you pay MIP for the life of the loan. Put 10%+ down and MIP drops after 11 years.
Self-sufficiency (3–4 unit only). For triplexes and fourplexes, FHA requires that 75% of gross rent from all units covers the full monthly payment (PITI + MIP). They assume 25% vacancy. A fourplex with $6,000 gross rent: $4,500 counts. Your PITI + MIP must be $4,500 or less. Fail that test and the loan doesn't close. Higher rates make it harder. Run the numbers before you offer. Our small multifamily guide covers this in detail.
Occupancy. You certify at closing that you'll live there as your primary residence for at least 12 months. Move in within 60 days. "I'll rent it out in six months"? No exceptions. Violate that and it's loan fraud. After 12 months, you can move out and rent all units — then it's a conventional rental.
Real-World Example
Phoenix duplex. Purchase price $380,000. You put 3.5% down: $13,300. Loan: $366,700. Upfront MIP: ~$6,417 (financed). At 6.75%, 30-year: P&I ~$2,377. Annual MIP: ~$1,681 ($140/month). Taxes and insurance: ~$400/month. Total PITI + MIP: ~$2,917.
You live in one unit, rent the other for $1,850. Your housing cost: $2,917 − $1,850 = $1,067/month out of pocket. That's your "rent" — and you're building equity. Cash-on-cash return on the $13,300 + ~$8K closing = ~$21K invested: tenant pays most of your mortgage. By year 2, you could move out, rent both units for $3,700, and the property might cash flow ~$400/month after expenses. The house hacking guide walks through this exact scenario.
Fourplex — self-sufficiency. $520,000, 3.5% down. Gross rent $6,200. Eligible rent: $6,200 × 0.75 = $4,650. PITI + MIP at 7%: ~$3,800. Passes. If rates were 8% and PITI + MIP hit $4,700, you'd fail. Larger down payment or wait for lower rates.
Pros & Cons
- 3.5% down — enter the market with minimal capital
- Count future rental income to qualify — lenders use 75% of projected rent
- Available on 2–4 units — house hack a duplex or small multifamily
- Credit flexibility — 580 gets you in (lender overlays may apply)
- 203(k) option — finance purchase + renovation in one loan
- MIP for life with <10% down — adds $100–$200+/month
- Occupancy lock — 12 months minimum, can't convert to full rental sooner
- Self-sufficiency test on 3–4 unit — limits deals when rates are high
- Property standards — FHA appraiser can flag repairs seller must fix
- Loan limits — $541K floor, $1.25M ceiling (2026); some markets hit the cap
Watch Out
Lender overlays. FHA allows 580 for 3.5% down, but many lenders set their own minimum at 620 or 640. Shop around. Some portfolio lenders are more flexible.
Self-sufficiency math. Don't assume a fourplex will pass. Run PITI + MIP at today's rates before you get emotionally attached. A deal that worked at 6% may fail at 7.5%. Have a conventional or larger-down-payment backup.
Occupancy intent. The word that matters is intent. You certify you intend to live there 12 months. Job relocation, family emergency, divorce — there are limited exceptions. "I changed my mind" isn't one. Plan to stay or don't use FHA.
203(k) complexity. Standard 203(k) requires a HUD consultant, detailed specs, and contractor oversight. Great for serious rehabs. Overkill for paint and appliances — use Limited 203(k) (up to $75K) or buy turnkey.
Ask an Investor
The Takeaway
FHA is the fastest path into house hacking — 3.5% down on a 2–4 unit, live in one, rent the rest. The MIP stings, but the barrier to entry is unmatched. Run the self-sufficiency test before you offer on a triplex or fourplex. Plan to stay 12 months. After that, you can move out and keep the property as a rental. The house hacking guide and small multifamily guide tie this into the full strategy.