How to Buy a Multi‑Family Property with an FHA Loan

Buying a multi-family property is a smart way to build wealth and generate income. An FHA multifamily loan makes this more accessible with low down payments and flexible credit requirements. This guide explains how to buy a multi-family property with an FHA loan, covering what it is, key benefits, and the essential steps to get started.

• 5 Top Reasons to Invest in Multi‑Family Real Estate
• Pros and Cons of Investing in Multi‑Family Properties
• Buying a Multi-Family Home: A Guide for Investors & First-Time Buyers

What Is an FHA Multifamily Loan?

Definition of an FHA Multifamily Loan

An FHA multifamily loan is a mortgage insured by the Federal Housing Administration (FHA) that enables borrowers to purchase or refinance residential properties with two to four units. According to the U.S. Department of Housing and Urban Development (HUD), properties with one to four units are classified as single-family dwellings, making them eligible for traditional FHA loans. Properties with five or more units fall under different FHA multifamily commercial loan programs.

These loans are primarily designed for owner-occupants who intend to live in one of the units as their primary residence while renting out the others. FHA multifamily loans offer benefits such as low down payments, more lenient credit requirements, and higher debt-to-income ratios compared to conventional multifamily financing. This makes them accessible to first-time buyers and investors with moderate credit or limited capital.

How It Works (Brief Overview)

FHA multifamily loans work by providing government-backed insurance to lenders, reducing their risk and enabling them to offer more favorable loan terms to borrowers. Here’s a brief overview of the process:

• Borrowers apply through FHA-approved lenders who evaluate creditworthiness, income, and property eligibility.
• The property must contain 2 to 4 residential units and meet FHA’s minimum property standards for safety and habitability.
• Borrowers must intend to occupy one unit as their primary residence, fulfilling the FHA’s owner-occupancy requirement.
• The loan typically requires a down payment as low as 3.5% for qualified borrowers.
• Rental income from the other units can be considered in the borrower’s debt-to-income ratio, helping to qualify for the loan.
• FHA mortgage insurance premiums are required, protecting lenders in case of default.
• Loan terms often include competitive interest rates and extended amortization periods, making monthly payments more affordable.

This structure allows borrowers to leverage rental income while benefiting from FHA’s flexible qualification standards and lower upfront costs.

FHA vs. Conventional Loans – Key Differences

Types of Loans for Multifamily Properties

When financing multifamily properties, investors have several loan options, each with distinct features suited to different needs, property types, and borrower profiles. Understanding the differences between FHA, conventional, VA, and USDA loans is essential for making an informed decision.

FHA Loans vs. Conventional Loans

FHA multifamily loans are government-backed loans insured by the Federal Housing Administration, specifically designed for properties with five or more units. In contrast, conventional loans are private loans not insured by the government and typically have stricter qualification requirements.

Key distinctions include:

• Loan Purpose and Eligibility:
  • FHA loans target multifamily properties with 5+ units and often require owner-occupancy of at least one unit.
  • Conventional loans can finance smaller multifamily properties (often 2-4 units) and larger ones but usually do not require owner-occupancy.
• Down Payment and Credit Requirements:
  • FHA loans require a lower down payment (as low as 3.5%) and accept lower credit scores (often 650+).
  • Conventional loans generally require higher down payments (5-20%) and stronger credit (usually 680+).
• Mortgage Insurance:
  • FHA loans mandate mortgage insurance premiums (MIP) for the loan’s life unless a large down payment is made.
  • Conventional loans require private mortgage insurance (PMI) only if the down payment is below 20%, and PMI can be canceled later.
• Loan Terms and Interest Rates:
  • FHA loans offer longer amortization periods (up to 35 years) and competitive fixed rates.
  • Conventional loans have terms up to 30 years, with interest rates varying based on borrower risk.
• Loan Limits and Processing Time:
  • FHA loans have set limits based on area and property type but can finance larger amounts with government backing.
  • Conventional loans often have higher maximum loan amounts but with faster approval and closing times.

Overall, FHA multifamily loans are ideal for investors seeking lower upfront costs and more flexible credit criteria, while conventional loans suit borrowers with strong credit and capital looking for quicker closings and potentially lower long-term insurance costs.

FHA Loans vs. VA and USDA Loans

While FHA loans are widely used for multifamily financing, VA and USDA loans cater to specific borrower groups and property types, with unique eligibility and benefits.

• VA Loans:
  • Available exclusively to eligible veterans, active-duty service members, and certain military spouses.
  • Typically used for single-family homes but can finance multifamily properties with up to four units if the borrower occupies one unit.
  • Offer zero down payment and no mortgage insurance, making them highly attractive for qualified borrowers.
  • Not commonly used for larger multifamily properties (5+ units).
• USDA Loans:
  • Designed for rural and suburban properties meeting specific geographic and income requirements.
  • Generally limited to single-family homes or smaller multifamily units (up to four units).
  • Provide low or no down payment options with mortgage insurance.
  • Not typically applicable for larger multifamily apartment complexes.

In contrast, FHA multifamily loans are more flexible regarding property size (5+ units) and are accessible to a broader range of borrowers, including investors who may not qualify for VA or USDA programs. FHA loans also support property rehabilitation and refinancing, which VA and USDA loans rarely cover for multifamily units.

When and Why to Choose an FHA Loan

Choosing an FHA multifamily loan makes strategic sense under several circumstances:

• Limited Down Payment and Moderate Credit: Borrowers with less capital for down payment or credit scores below conventional loan thresholds can access financing with FHA’s lower requirements.
• Long-Term Financing Needs: FHA multifamily loans offer extended amortization periods (up to 35 years or more), reducing monthly payments and improving cash flow for rental properties.
• Property Rehabilitation: FHA loans, especially HUD 221(d)(4) and 223(f) programs, allow financing for substantial rehabilitation or acquisition of existing multifamily properties, making them ideal for value-add investors.
• Owner-Occupancy Plans: Investors planning to live in one unit of a multifamily property can leverage FHA loans’ owner-occupancy provisions for better terms.
• Competitive Interest Rates and Loan-to-Value (LTV): FHA loans often provide lower interest rates and higher LTV ratios (up to 87% or more), enabling greater leverage.
• Access to Government-Backed Security: The FHA’s insurance reduces lender risk, often translating to more favorable loan terms and increased approval chances, especially in challenging credit or market conditions.

However, borrowers should consider longer closing times and mandatory mortgage insurance premiums when opting for FHA multifamily loans. These loans are best suited for those who prioritize affordable entry costs, long-term stability, and property improvement financing over rapid closing.

FHA Loan Requirements

General Requirements (Credit Score, Down Payment, Debt-to-Income)

To qualify for an FHA loan in 2025, borrowers must meet several core eligibility criteria designed to ensure responsible lending while maintaining accessibility:

• Credit Score:
  • Minimum credit score of 580 to qualify for the low down payment option of 3.5%.
  • Borrowers with credit scores between 500 and 579 must provide a higher down payment of at least 10%.
  • Some lenders may prefer scores of 620 or higher for smoother approval, but FHA guidelines allow flexibility.
• Down Payment:
  • The minimum down payment is 3.5% of the purchase price for borrowers with credit scores 580 and above.
  • For scores between 500 and 579, a 10% down payment is required.
  • The down payment can come from personal funds, gifts, or approved assistance programs.
• Debt-to-Income Ratio (DTI):
  • FHA guidelines typically allow a DTI ratio up to 43%, but some lenders may approve up to 50-57% depending on compensating factors like savings or rental income.
  • For multifamily properties, rental income from other units can sometimes be included in the DTI calculation, improving eligibility.
• Income and Employment:
  • Borrowers must demonstrate stable and consistent income, usually verified through at least two years of employment history.
  • Proof of income includes pay stubs, tax returns, and W-2 forms.
• Mortgage Insurance:
  • FHA loans require an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, typically rolled into the loan.
  • Annual mortgage insurance premiums (MIP) range between 0.15% and 0.85%, depending on loan terms and down payment.

Occupancy Rules – Must Live in One of the Units

One of the defining FHA loan requirements is the owner-occupancy rule, particularly relevant for multifamily properties:

• Primary Residence Requirement:
  • Borrowers must intend to occupy one of the units as their primary residence within 60 days of closing.
  • This applies to FHA loans on properties with up to four units (duplex, triplex, fourplex).
  • The occupancy rule is designed to prevent FHA loans from being used solely for investment or rental income properties without owner presence.
• Duration of Occupancy:
  • FHA expects borrowers to maintain occupancy for at least one year.
  • Failure to occupy the property as intended may violate FHA loan terms and could lead to penalties or loan recasting.
• Implications for Investors:
  • Investors looking to purchase multifamily properties solely for rental income typically cannot use FHA loans unless they live in one of the units.
  • This makes FHA loans attractive to owner-occupiers who want to offset mortgage costs by renting out other units.

FHA-Approved Lenders and Eligibility Criteria

FHA loans must be originated through FHA-approved lenders who adhere to FHA underwriting standards and guidelines:

• FHA-Approved Lenders:
  • Only lenders approved by the U.S. Department of Housing and Urban Development (HUD) can issue FHA loans.
  • These lenders undergo regular audits and must comply with FHA requirements on credit, income verification, property appraisal, and loan processing.
• Borrower Eligibility:
  • U.S. citizens, permanent residents, and certain non-permanent residents are eligible to apply.
  • Borrowers must have a valid Social Security number and be of legal age to sign a mortgage contract.
  • The property must meet FHA standards for safety, security, and soundness, verified through FHA appraisal.
• Property Eligibility:
  • FHA loans cover single-family homes and multifamily properties with up to four units.
  • The property must be the borrower’s primary residence.
  • Properties must meet FHA minimum property standards to ensure livability and safety.
• Loan Limits:
  • FHA loan limits vary by county and property type, ranging from $524,225 for single-family homes in low-cost areas up to $2,326,875 for fourplexes in high-cost areas in 2025.
  • These limits are updated annually and reflect local housing market conditions.

Additional Requirements for FHA Multifamily Loans

Eligible Property Types (2–4 Units Only)

FHA multifamily loans are specifically designed for residential properties with 2 to 4 units, such as duplexes, triplexes, and fourplexes. These loans are intended for owner-occupants, meaning the borrower must live in one of the units as their primary residence. Properties with five or more units do not qualify under the standard FHA multifamily loan program and instead fall under separate FHA multifamily financing programs like Section 221(d)(4) or 223(f).

Key points about eligible properties:

• The property must be primarily residential, with at least 51% of the square footage dedicated to residential use.
• Mixed-use properties with commercial space are only eligible if the residential portion meets FHA requirements.
• The property must meet FHA’s minimum property standards for safety, security, and livability.
• Manufactured homes on permanent foundations can also qualify under FHA guidelines if they meet other eligibility criteria.

This focus on 2-4 unit properties allows FHA loans to support small-scale multifamily ownership, making them accessible to first-time buyers and investors who want to live on-site while renting out additional units.

Rental Income and Self-Sufficiency Test

One of the benefits of FHA multifamily loans is the ability to use rental income from the additional units to help qualify for the loan. However, FHA imposes specific guidelines to ensure the property is financially viable:

• Rental income documentation: Lenders require an appraisal that establishes fair market rent for each unit, and if existing leases are in place, these must be provided.
• For borrowers without rental history, lenders typically use 75% of the appraised rental income to account for vacancies and expenses.
• For properties with 3 or 4 units, FHA requires a self-sufficiency test, meaning the net rental income must cover 100% of the monthly mortgage payment (principal, interest, taxes, and insurance).
• Rental income is combined with the borrower’s employment income to calculate debt-to-income ratios, which FHA generally allows up to 43-59.6%, depending on lender flexibility and compensating factors.

This approach helps ensure the property can sustain itself financially, reducing the risk of default and supporting borrower qualification.

Property Condition and FHA Appraisal Standards

FHA loans require the property to meet strict appraisal and condition standards to protect borrowers and lenders:

• The property must undergo an FHA appraisal by an FHA-approved appraiser who evaluates both the market value and the fair market rent of each unit.
• The appraisal ensures the property meets FHA’s Minimum Property Standards, which include:
  • Structural soundness (foundation, roof, walls)
  • Safe and functioning electrical, plumbing, and heating systems
  • Absence of health hazards such as lead-based paint, mold, or unsafe materials
  • Adequate access, security, and habitability
• Any deficiencies identified during the appraisal must be repaired or addressed before loan approval or closing.
• Properties with significant deferred maintenance or safety issues may be ineligible unless rehabilitated, potentially through FHA renovation loans like the 203(k) program.

FHA Multifamily Loan Limits

How Loan Limits Are Calculated by County

FHA multifamily loan limits are determined annually and vary by county and metropolitan area based on local housing market conditions. The calculation primarily reflects the median home prices in each jurisdiction, ensuring loan limits align with regional real estate values.

Key factors in the calculation include:

• Median Sale Price: FHA uses the median sale price of homes in a county or metropolitan statistical area from the previous year as a baseline.
• National Floor and Ceiling: Loan limits cannot fall below a national minimum (floor) or exceed a national maximum (ceiling) set by HUD, which are adjusted yearly.
• Multipliers for Multifamily Units: Loan limits increase with the number of units in the property. FHA sets fixed multipliers for duplexes, triplexes, and fourplexes relative to the single-family home limit.
• High-Cost and Special Exception Areas: In high-cost counties (e.g., San Francisco, New York City), FHA loan limits are significantly higher to reflect expensive housing markets. Special exception areas like Alaska, Hawaii, Guam, and the U.S. Virgin Islands have even higher limits.

This county-specific approach allows FHA to provide appropriate financing options that reflect local affordability and market realities.

2025 FHA Loan Limits for 2-, 3-, and 4-Unit Properties (Include Real Examples)

For 2025, FHA multifamily loan limits vary widely depending on the area’s cost of living. Below are typical loan limits for 2-, 3-, and 4-unit properties in different types of counties:

Real examples:

• In a low-cost county such as parts of the Midwest, a borrower can finance up to $671,200 for a duplex or up to $1,008,300 for a fourplex using an FHA multifamily loan.
• In a high-cost area like Los Angeles County, the loan limit jumps to $1,548,975 for a duplex and up to $2,326,875 for a fourplex.
• In special exception areas such as Hawaii, limits are even higher, allowing loans up to $2,323,450 for a duplex and nearly $3.5 million for a fourplex.

These increased limits enable borrowers to access FHA financing for larger multifamily properties in expensive markets with relatively low down payments.

What to Do If the Property Exceeds FHA Limits

If the multifamily property you wish to purchase exceeds the FHA loan limits for your county, consider these options:

• Seek Conventional Financing: Conventional multifamily loans often have higher loan limits or jumbo loan options that can accommodate more expensive properties, though they may require higher credit scores and larger down payments.
• Split Financing: Some borrowers use a combination of FHA financing for a portion of the property and other loan products or cash for the remainder, though this can complicate underwriting.
• Look for Properties Within Limits: Adjust your search to properties priced within FHA limits to take advantage of the program’s low down payment and flexible credit requirements.
• Consider Other Government Programs: For larger multifamily properties (5+ units), explore HUD’s multifamily loan programs like Section 221(d)(4) or Section 223(f), which cater to larger apartment complexes but have different qualification criteria.
• Increase Down Payment: While FHA loan limits are fixed, putting down a larger down payment may help reduce the loan amount needed or qualify for other financing options.

Steps to Buy a Multi-Family Property with an FHA Loan

Step 1 – Get Pre-Approved

The first step in purchasing a multifamily property with an FHA loan is to get pre-approved by an FHA-approved lender. Pre-approval helps you understand how much you can borrow and strengthens your offer when you find a property.

• The lender will evaluate your credit score, typically preferring 620 or higher, though FHA guidelines allow for some flexibility.
• They will review your income documentation, including pay stubs, tax returns, and possibly rental income projections from the additional units.
• Your debt-to-income ratio (DTI) will be assessed, with FHA generally favoring a DTI below 43%, though some lenders may allow higher ratios with compensating factors.
• You will need to demonstrate reserves, usually at least three months of mortgage payments, especially for 2-4 unit properties.
• Pre-approval gives you a clear budget and signals to sellers that you are a serious buyer.

Step 2 – Find a Multi-Family Property That Qualifies

Once pre-approved, your next task is to find a multifamily property that meets FHA eligibility requirements:

• The property must have 2 to 4 residential units and be intended as your primary residence with the intent to occupy one unit.
• It must meet FHA’s minimum property standards for safety, security, and habitability.
• The property should be located in an area where FHA loans are available and within FHA loan limits.
• Consider the property’s condition, potential rental income, and vacancy rates, as these impact your ability to qualify and the loan underwriting process.

Step 3 – FHA Appraisal & Property Inspection

After selecting a property and having an accepted offer, the lender will order an FHA appraisal:

• The appraisal is conducted by an FHA-approved appraiser who evaluates the property’s market value and ensures it meets FHA’s strict minimum property standards.
• For multifamily homes, the appraiser also assesses the fair market rental value of each unit, which can be used to help qualify for the loan.
• The property inspection covers structural integrity, safety issues (like electrical, plumbing, and roofing), and habitability concerns.
• Any required repairs identified during the appraisal must be completed before closing or negotiated with the seller.

Step 4 – Submit Loan Application

With appraisal complete, you formally submit your FHA loan application through your lender:

• Provide all necessary documentation, including government-issued ID, recent bank statements, pay stubs, tax returns, W-2s or 1099s, and any lease agreements if applicable.
• The lender will verify all information and may request additional documents during the underwriting process.
• You will receive a Loan Estimate within three business days, outlining your estimated interest rate, monthly payments, and closing costs.
• The loan then moves through processing and underwriting, where the lender reviews your financials and the property details to approve the loan.

Step 5 – Closing and Taking Ownership

Once your loan is approved, the final step is closing:

• You will review and sign all closing documents, including the mortgage note, deed of trust, and settlement statements.
• Closing costs, which may include appraisal fees, title insurance, and escrow fees, are paid at this time.
• After closing, you take legal ownership of the multifamily property and begin occupancy of your unit.
• It’s important to maintain your owner-occupancy for at least one year as required by FHA rules.
• You can then start managing the rental units, collecting income, and building equity in your investment.

Benefits of Using an FHA Loan for a Multi-Family Property

Low Down Payment (as Low as 3.5%)

One of the most compelling advantages of an FHA loan for purchasing a multifamily property is the low down payment requirement, which can be as low as 3.5% for borrowers with a credit score of 580 or higher. This significantly lowers the upfront capital needed compared to conventional loans, which often require 10% or more down for multifamily properties. The low down payment makes FHA loans especially attractive to first-time buyers and investors with limited cash reserves, enabling easier entry into the multifamily housing market.

Easier Qualification for First-Time Buyers

FHA loans are known for their flexible qualification standards, which benefit first-time buyers and those with less-than-perfect credit. FHA guidelines allow:

• Credit scores as low as 580 for the 3.5% down payment option, and even down to 500 with a higher down payment.
• Higher debt-to-income ratios than many conventional lenders permit, often up to 43-50%, with some flexibility depending on compensating factors.
• Consideration of rental income from additional units in the multifamily property to help qualify, improving debt-to-income calculations.

These features make FHA multifamily loans a practical choice for first-time buyers who want to live in one unit while renting out others, providing a pathway to homeownership and wealth building.

Build Equity Through Rental Income

Owning a multifamily property with an FHA loan allows borrowers to build equity while generating rental income from the additional units. This rental income can:

• Offset mortgage payments, property taxes, and maintenance costs, improving cash flow.
• Help qualify for the loan by being factored into debt-to-income ratios during underwriting.
• Provide a steady income stream that accelerates equity accumulation and long-term wealth creation.

By leveraging rental income, FHA multifamily borrowers can reduce their out-of-pocket housing expenses and potentially pay down their mortgage faster, turning their residence into a profitable investment.

House Hacking – Live in One Unit, Rent the Others

House hacking is a popular strategy enabled by FHA multifamily loans, where the borrower lives in one unit of a duplex, triplex, or fourplex and rents out the other units. This approach offers several benefits:

• Reduced living expenses: Rental income from other units can cover a significant portion or all of the mortgage payment.
• Building credit and savings: Lower housing costs free up money to save or invest elsewhere.
• Owner-occupancy compliance: FHA requires borrowers to live in one unit as their primary residence, making house hacking a perfect fit for FHA multifamily financing.
• Experience as a landlord: House hacking provides hands-on experience managing rental properties, which can be valuable for future real estate investments.

This strategy is especially beneficial for first-time buyers or those new to real estate investing, allowing them to live affordably while growing their investment portfolio.

Conclusion:

Knowing how to buy a multi-family property with an FHA loan helps you leverage affordable financing to live in one unit and rent out others. With low down payments and easier qualification, FHA loans are ideal for first-time buyers and investors looking to grow equity and cash flow through multifamily homes. Follow the right steps to secure your loan and make your investment a success.