What is house hacking?
House hacking is buying a small multifamily property as your home and renting out the units you don’t live in. Because you live there, you can use owner-occupied financing, which usually means a much smaller down payment and a lower rate than an investment property loan.
The idea works on any 2–4 unit property: a duplex, triplex or fourplex. People also house hack a single-family home by renting rooms or an accessory dwelling unit, but this guide focuses on small multifamily, where each tenant has a separate unit and lease.
Which loans can you use to house hack?
The two main options are an FHA loan with as little as 3.5% down and a conventional Fannie Mae loan with as little as 5% down. Both require you to live in the property as your principal residence. Each has its own costs and qualifying rules, and the table compares them.
| Factor | FHA loan | Fannie Mae conventional loan |
|---|---|---|
| Minimum down payment | 3.5% with a credit score of 580 or higher (96.5% LTV) | 5% on a 2–4 unit principal residence purchase (95% LTV) |
| Mortgage insurance | Upfront premium of 1.75% of the base loan plus an annual premium | Private mortgage insurance while LTV is above 80% |
| Extra test on 3–4 units | Self-sufficiency test | None of the same kind |
| Loan size limit | FHA county limits, higher for more units | Conforming limits, higher for more units |
| Occupancy | Principal residence | Principal residence |
FHA 3.5% down on a 2–4 unit property
FHA allows a 96.5% loan-to-value on purchases, which works out to 3.5% down, for borrowers with a credit score of 580 or higher, according to HUD Handbook 4000.1. Borrowers with scores from 500 to 579 are limited to 90% LTV, or 10% down. The same rules apply whether you buy a duplex or a fourplex.
FHA charges an upfront mortgage insurance premium of 1.75% of the base loan, which is usually added to the loan, plus an annual premium paid monthly. Under Mortgagee Letter 2023-05, the annual premium on a 30-year loan of $726,200 or less with more than 95% LTV is 0.55% and lasts for the life of the loan. FHA loan limits vary by county and rise with the number of units.
The FHA self-sufficiency test for 3–4 units
On a triplex or fourplex, FHA requires the property to pay for itself on paper. HUD Handbook 4000.1 takes the appraiser’s estimate of fair market rent for all units, including the one you’ll live in, and subtracts the greater of the appraiser’s vacancy and maintenance estimate or 25%. The monthly PITI divided by that net figure can’t exceed 100%.
In plain terms, 75% of the building’s full market rent has to cover the mortgage payment, taxes and insurance. That’s hard to pass in expensive markets, where fourplex prices are high relative to rents. Duplexes don’t face this test, which is one reason many FHA house hackers start with two units.
Run the test before you make an offer. Ask your lender how they treat the monthly mortgage insurance premium in the calculation, and use a conservative rent estimate, since the appraiser’s number is the one that counts.
Fannie Mae 5% down on owner-occupied 2–4 units
Fannie Mae allows up to 95% LTV, or 5% down, on the purchase of a 2–4 unit principal residence with a fixed-rate loan through its Desktop Underwriter system. This is shown in the Eligibility Matrix dated April 1, 2026, and it replaced the higher minimum down payments Fannie Mae used to require on multi-unit homes before late 2023.
A conventional loan avoids FHA’s self-sufficiency test and its lifetime annual premium at high LTVs. Private mortgage insurance on a conventional loan can be removed once you have enough equity. Credit score and debt ratio requirements are usually stricter than FHA’s, so compare quotes on both.
Using rental income to qualify
Lenders can count part of the future rent from the other units as income when you buy a 2–4 unit home. Fannie Mae’s Selling Guide (B3-3.8-02) uses 75% of the monthly gross rent, supported by the lease or the appraiser’s rent schedule (Form 1007 or Form 1025). The 25% haircut covers vacancy and upkeep.
Experience matters. If you have at least 12 months of rental property management experience, the lender can use the full qualifying rental income. With less than that, Fannie Mae lets the rent offset the property’s payment only. Ask your lender how they’ll treat your rent before you write an offer.
Owner-occupancy rules: how long do you have to live there?
FHA’s security instrument requires the borrower to move in within 60 days of signing and to live in the property as a principal residence for at least one year, unless the lender decides that would cause undue hardship. Conventional loans include a similar occupancy promise in the security instrument.
Take the promise seriously. Buying with an owner-occupied loan when you never plan to move in is mortgage fraud. Moving out after a year because you bought another home, took a job elsewhere or outgrew the unit is how house hacking is meant to work.
Worked example: house hacking a fourplex with FHA
Here’s a fourplex bought for $640,000 with FHA financing at 6.25% on a 30-year loan. The 3.5% down payment is $22,400, leaving a base loan of $617,600. The 1.75% upfront premium of $10,808 is financed, so the total loan is $628,408 with monthly principal and interest of about $3,869.
Add property taxes of $640 a month and insurance of $260, and PITI is $4,769. Monthly mortgage insurance at 0.55% of the base loan is about $283, for a total payment of $5,052.
The appraiser estimates rent of $1,700 for each unit, or $6,800 a month. After the 25% factor, net self-sufficiency rental income is $5,100. Even counting mortgage insurance, the payment is 99.1% of that figure, so the property passes. If the units only rented for $1,450, the net figure would be $4,350, and the payment would be 116.1% of it, failing the test.
Once you move in, the three rented units bring in $5,100 a month. Set aside 15%, or $765, for vacancy and repairs, and your net housing cost is about $717 a month for a building you own.
| Line item | Monthly amount |
|---|---|
| Principal and interest on $628,408 | $3,869 |
| Property taxes | $640 |
| Insurance | $260 |
| PITI | $4,769 |
| FHA annual MIP (0.55%) | $283 |
| Total payment | $5,052 |
| Rent from three units at $1,700 | $5,100 |
| Vacancy and repair reserve (15%) | $765 |
| Your net housing cost | $717 |
Moving out and keeping the property as a rental
After you’ve met the occupancy requirement, you can move out, rent your unit and keep the original loan. Your low-down-payment mortgage stays in place, which is the main long-term payoff of house hacking.
In the example, renting the fourth unit at $1,700 brings rent to $6,800 a month. After the same 15% reserve, that’s $5,780 against the $5,052 payment, or about $728 a month of cash flow before any management fee. Use the rental property calculator and the cash-on-cash return calculator to test your own numbers, and check the DSCR calculator if you plan to refinance later with a DSCR loan.
Tax rules when you live in part of a rental
You can deduct expenses and depreciation only for the rented part of the property, so a fourplex owner living in one unit splits shared costs between personal and rental use. IRS Publication 527 explains the split. Depreciation for residential rental property runs over 27.5 years.
In the example, if the land is worth 20% of the price, the building is worth $512,000. Three of four units are rented, so $384,000 is depreciable, or about $13,964 a year once the units have been in service for a full year.
The home sale exclusion of up to $250,000 of gain, or $500,000 for married couples filing jointly, under Section 121 only covers your own unit. IRS Publication 523 says gain on a separate rental part of the property has to be allocated out, and you must meet the two-out-of-five-year ownership and use test. Gain equal to depreciation taken after May 6, 1997, can’t be excluded. Have your CPA run your numbers before you sell, and compare a sale with a 1031 exchange on the rental portion.
How this works for a 5+ unit apartment building
House hacking stops at four units. A building with five or more units is commercial property, so FHA and Fannie Mae owner-occupied home loans don’t apply. Even if you live in one unit, you’d be financing with a commercial or multifamily loan that typically needs a much larger down payment and is sized on NOI and DSCR.
That’s why house hacking is usually a first step. Many investors move out after a year, buy another 2–4 unit home the same way, and then move into 5+ unit buildings once they have equity and experience. Our guide to how to buy an apartment building covers that step, and apartment building loans compares the financing.
From house hacking to passive investing with Skyline
Not everyone who starts by house hacking wants to keep being a landlord. Investing passively in a 5+ unit apartment building through a syndication is the other path, where a sponsor runs the property and you invest as a limited partner. Our guide to passive multifamily investing explains how it works.
Skyline Capital Investments buys apartment buildings with five or more units nationwide. Join our Investor Network through the form on this page for educational material and to hear about opportunities. Offerings are made only to eligible investors through offering documents, and most are limited to accredited investors.
