Why buyers choose multi-unit homes
When you live in one unit and rent the others, your tenants' rent can cover part of your monthly payment. Over time, you build equity in a property that also earns income. It can be a practical first step into owning rental property, as long as you're comfortable being a landlord who lives next door to your tenants.
Owner-occupied vs. investment financing
Lenders treat a 2–4 unit home you live in as your primary residence. That often means better terms than an investment property loan, which usually needs a larger down payment and carries higher rates.
To use owner-occupied financing, you typically must move in within a set time after closing, often 60 days, and plan to live there for at least a year. Your loan documents will spell out the rule.
Loan options
Each loan type handles multi-unit homes a little differently. Your loan consultant can compare them for your situation.
- FHA loans: can be used on homes with up to four units when you live in one of them.
- VA loans: eligible veterans and service members can buy up to four units when they live in one.
- Conventional loans: allow 2–4 unit primary homes. Down payment and reserve requirements are often higher than for a single-family home.
- Loan limits: conforming and FHA loan limits are higher for homes with more units.
How rental income helps you qualify
Lenders may count rent from the units you won't live in. They usually use only part of the expected rent, to allow for vacancies and upkeep. The rent may come from existing leases or an appraiser's estimate of market rent.
Some loans add extra tests for three- and four-unit homes. For example, FHA checks whether the property's rental income can largely support its own payment. Ask early so you aren't surprised.
What lenders look for
- Your credit, income and debt-to-income ratio, as with any home loan
- Cash reserves, which some loans require on multi-unit homes
- Current leases and rent rolls, if the units are already rented
- An appraisal that includes a review of market rents
- Proof you plan to live in one of the units
Costs and risks to plan for
Being a landlord brings real costs. Budget for repairs, vacancies and turnover between tenants. Your insurance will differ from a single-family policy, and you may need separate liability protection. Local rental rules, permits and inspections vary, so check your city or county before you buy.
Before you make an offer
- Review existing leases, security deposits and rent history
- Check whether utilities are separate for each unit
- Get a thorough home inspection of every unit
- Run your budget with and without rent from one unit
