Home » Blog » Expert Advice » How to Buy a Duplex with FHA Financing
Use FHA to buy Duplex

How to Buy a Duplex with FHA Financing

3.5% Down Payment

Do you dream of having your tenants make your mortgage payment for you each month?  Have you ever thought of making your first home, an investment home as well?

FHA allows you to buy a duplex, live in one unit, and rent out the other side.  FHA also allows 3 and 4 unit properties as well, but the requirements are a little more strict.  We will talk more about that later.

As long as you are buying a multi-family home with the intention of living in one of the units, you have the ability to become a landlord following basic FHA guidelines.  FHA guidelines only require a 3.5% down payment.

Using Rent to Qualify

Many first time homebuyers do not think about being a landlord.  One of the main reasons why you may not have considered buying units is that think it’s too expensive.  It’s true that a 2 unit home is more expensive than a single family, but not by much.

Find the Right Lender. Find the Right Loan. Get Help Now!

What investors know that first time buyers may not know, is that you can use rental income as qualifying income.  FHA guidelines allow you to use 75% of rents from the unoccupied unit(s) as qualifying income.

Here’s an example of how this would work if you are buying a duplex using FHA financing.  This is a hypothetical scenario to show the potential for using rental income to amplify your affordability.

  • Property Type: 2 Unit Duplex
  • Purchase Price: $575,000
  • Monthly Income Required: $5,500
  • Monthly Rental Income: $2,000
  • Qualifying Rental Income: x 75% = $1,500
  • Your Minimum Income Requirement: $4,000

By using 75% of the rental income on the second unit of your duplex, you immediately experience a 27% increase in your income towards qualifying for the larger loan size.

Find the Right Lender. Find the Right Loan. Get Help Now!

Buying a 3 to 4 Unit Property

When buying a 3 or 4 unit property using FHA financing, the property needs to meet the self-sufficiency rental income calculation.

Net Self-Sufficiency Rental Income refers to the Rental Income produced by the subject Property over and above the Principal, Interest, Taxes, and Insurance (PITI).

The PITI divided by the monthly Net Self-Sufficiency Rental Income may not exceed 100 percent for three- to four-unit Properties.  Another way to look at it is, the total rents that can be generated from the property must at least be able to cover the PITI payment.

Net Self-Sufficiency Rental Income is calculated by using the Appraiser’s estimate of fair market rent from all units, including the unit the Borrower chooses for occupancy, and subtracting the greater of the Appraiser’s estimate for vacancies and maintenance, or 25 percent of the fair market rent.

Find the Right Lender. Find the Right Loan. Get Help Now!

Additional reserve requirements are also imposed when buying 3 and 4 unit properties.  You must have 2 months PITI in liquid reserves, in addition to having all down payment and closing costs covered.  This is not required when buying a 2 unit duplex.

Buy After Bk, Foreclosure Short Sale, or DIL

Having a bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure in your past will not prevent you from buying a 2, 3, or 4 unit, multi family property using FHA financing.  The waiting periods for buying after a financial hardship is as follows:


You can buy in 2 years from the discharge of a Chapter 7 bankruptcy, or 1 year after the discharge of a Chapter 13.  Conventional financing requires a 4 year wait from the discharge of a Chapter 7, and 2 years from the discharge of a Chapter 13 bankruptcy.

Find the Right Lender. Find the Right Loan. Get Help Now!

Foreclosure, Short Sale or Deed in Lieu

You can buy in 3 years from the date your name is removed from title through a Foreclosure, Short Sale, or Deed in Lieu.  If the loan being paid off is also an FHA loan, your waiting period will begin when the HUD Mortgage insurance claim is paid.  This is called “clearing CAIVRS”.  CAIVRS is the tracking system for tracking federal student loans, and FHA mortgage insurance claims.  It’s full name is Credit Alert Verification Reporting System.

Waiting Periods

Waiting periods begin on the date that the event is recorded.  After the waiting period, you may not be able to get an approval (or FHA number) until after the period is over.  This is unlike conventional mortgage waiting period which require that you sign loan documents after the waiting period is over.

Find the Right Lender. Find the Right Loan. Get Help Now!

You can, and should have a loan officer review your income and asset information, and look at your credit report so that they can research all of the actual waiting periods to the day.  This is called a “credit qualifying” review.  At the end of this review, you will know exactly what day you can begin the approval process.

Related Reading:  Buy Again After BK, Foreclosure, Short Sale or DIL – Updated Guidelines

Working with an experienced loan officer

If you are being told that you cannot do something, it may not always mean that you don’t qualify.  Qualifying for a home loan equal to hundreds of thousands of dollars is not something that can be done by a computer, or a machine.  It can be extremely complex, and challenging for some buyers.

Find the Right Lender. Find the Right Loan. Get Help Now!

Do not get discouraged if a loan officer tells you “no”.  They might have just done you a favor.  If the lender that turns you down does not explain to you in detail the reason why you cannot qualify, it may just mean that they don’t want to try.

An experienced loan officer will explain to you why you do not qualify now, and what it would require for you to qualify in the future.  An experienced loan officer will educate and empower you so that you are making more informed decisions.

If you’re having trouble getting answers, add your questions below.  All questions are monitored, and will be answered quickly.

Is FHA Right for You?

About Your Expert

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic