House hacking: buy a small multifamily, let tenants pay most of the mortgage

Why house hacking is the best financing deal in real estate

Investment property loans want 15-25% down and price higher. Owner-occupant loans want as little as 0-5% down and get the best pricing in the market — because you live there. House hacking is the arbitrage: buy a 2-4 unit property with an owner-occupant loan, live in one unit, rent the others, and let the rent absorb most of your payment. Same building, same tenants, dramatically cheaper capital than any investor loan will ever give you. The catch is real but manageable: you have to actually live there, generally for at least a year.

The FHA play: 3.5% down on 2-4 units

FHA is the workhorse. It allows 3.5% down on properties up to four units, credit scores that conventional would punish, and — critically — it lets you count rent from the other units toward qualifying even if you've never been a landlord. The costs: an upfront mortgage insurance premium of 1.75% of the loan (usually financed in) and annual mortgage insurance that, at low down payments, stays for the life of the loan until you refinance out of it. FHA loan limits for 2-4 unit properties are also meaningfully higher than the single-family limit, which surprises people — a fourplex FHA loan can run well north of $1 million in ordinary-cost counties.

The self-sufficiency test on 3-4 units

Here's the trap nobody mentions until underwriting: on 3- and 4-unit FHA purchases, 75% of the gross market rent of all units — including the one you'll occupy — must cover the entire PITIA payment. Not your income, the building's. In expensive metros where prices outrun rents, most triplexes and fourplexes fail this test, which is why FHA house hacks in those markets are overwhelmingly duplexes (the test doesn't apply to 2 units). Run the test before you tour the property: 0.75 × total market rent ≥ full payment, or FHA is off the table for that building.

Conventional: 5% down on 2-4 units

Since late 2023, Fannie Mae allows 5% down on owner-occupied 2-4 unit properties — a genuine game changer, because conventional mortgage insurance cancels once you have enough equity, unlike FHA's life-of-loan MI. You'll need stronger credit than FHA and the payment math still has to work, but if you qualify both ways, run the total-cost comparison over your expected hold. Our FHA vs conventional guide covers the tradeoffs in detail. Conventional also has no self-sufficiency test, which can rescue a 3-4 unit deal that fails FHA's.

VA: zero down on up to four units

If you have VA eligibility, this is the strongest house hack in existence: 0% down on a 2-4 unit property, no monthly mortgage insurance, competitive pricing. The property has to meet VA minimum property requirements and you must occupy a unit. Rental income from the other units can help you qualify, typically with some landlord-experience or reserves conditions depending on the lender. Full details in VA loans for multifamily.

Using the other units' rent to qualify

Lenders don't take your word for the rent. On a purchase, the appraiser completes a rent schedule establishing market rent for the units you'll lease out, and underwriting credits 75% of that market rent (the 25% haircut covers vacancy and maintenance) toward your qualifying income. That offset is what makes the debt-to-income ratio work on a building that costs more than a starter home. If the units are already tenanted, existing leases help too.

The worked duplex

A $400,000 duplex with FHA 3.5% down, using an illustrative 6.75% rate purely for the math (we don't quote live rates in guides):

You control a $400,000 income property for $14,000 down plus closing costs, and your effective housing cost is $1,544 — likely less than renting a comparable one-unit place in the same neighborhood. For qualifying, the lender credits 75% of $1,750, or $1,312, against the payment, so you need to carry roughly $1,982 of housing cost within your DTI, not $3,294. Note the honest caveat: $1,544 is your cost when the unit is rented. Budget for vacancy, repairs, and the month your tenant's water heater dies.

The one-year occupancy obligation

Owner-occupant loans require you to move in within 60 days and intend to live there for at least one year. This is signed at closing, and misrepresenting it is occupancy fraud — a federal issue, not a paperwork nuance. The good news: the obligation is one year of occupancy, not one year per loan forever. After a year, you can move out, keep the loan and the low rate, and the property becomes a rental legitimately. What you can't do is claim owner-occupancy you never intend. The distinctions matter — read second home vs investment property for how lenders classify occupancy and why fudging it isn't worth it.

The graduation path

House hacking compounds if you repeat it. The standard ladder: buy a 2-4 unit with a low-down owner-occupant loan, live there a year, move out and rent your old unit, then buy the next one with a new owner-occupant loan. One wrinkle: FHA generally allows only one FHA loan at a time, so the usual sequence is FHA first, then conventional 5%-down for subsequent moves, or refinance the FHA into conventional to free up eligibility. VA entitlement can also support more than one property in sequence. After two or three cycles you're holding several buildings bought with 0-5% down — and the equity in building one can fund the down payment or rehab budget on your first true investment deal, which is where BRRRR financing picks up the story.

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