House Hacking: How to Buy a Duplex or Fourplex With a Low Down Payment

House hacking means buying a small multifamily property, living in one unit and renting out the rest. The rent from your tenants offsets your mortgage, sometimes substantially. Because you live there, you can use owner-occupied financing with much lower down payments than a typical investment property loan requires.

Why owner-occupied financing matters

Investment property loans typically require larger down payments and carry higher rates. Buy a two- to four-unit property as your primary residence and you can often use home-buyer loan programs instead:

• FHA loans allow 1-4 unit properties with as little as 3.5% down for borrowers with a 580+ credit score. You generally must move in within 60 days and intend to live there for at least a year.
• VA loans allow eligible veterans to buy up to four units with no down payment, provided they occupy one unit.
• Conventional loans: Fannie Mae lowered its minimum down payment for owner-occupied 2-4 unit properties to 5% in late 2023, subject to eligibility requirements.

How rental income helps you qualify

Lenders can often count a portion of the expected rent from the other units, commonly 75% of the market rent, toward your qualifying income. For three- and four-unit properties, FHA also applies a self-sufficiency test: the net rental income must generally cover the full mortgage payment on its own. Ask your lender how they'll treat rental income before you make an offer.

Running the numbers

Before buying, estimate realistic monthly figures:

• Income: market rent for each rentable unit, based on actual local comps.
• Vacancy: budget for empty months, often 5% to 8% of rent.
• Repairs and capital expenditures: roofs, water heaters and appliances wear out faster in rentals.
• Property management: even if you self-manage, value your time.
• Insurance, taxes and utilities that the landlord pays.

A good house hack often reduces your personal housing cost below what you'd pay to rent a comparable apartment, while you build equity and landlord experience.

The trade-offs

You'll live next door to your tenants, handle maintenance calls and need to understand local landlord-tenant law, fair housing rules and any rental registration requirements. Older multifamily buildings can also carry deferred maintenance. Get a thorough inspection.

What happens after year one

Once you've met your occupancy requirement, you can often move out, rent your unit too and repeat the strategy with another owner-occupied purchase. Lenders and loan programs have rules about how many owner-occupied loans you can hold, so plan ahead.

The bottom line

For buyers willing to be hands-on landlords, house hacking is one of the most accessible ways to start investing in real estate. Underwrite conservatively, confirm loan requirements with a lender and treat it like the business it is.