How to buy a 2-to-4-unit property in Chicago

Buying a 2-to-4-unit property in Chicago is easier than you think.

You don't need perfect credit or a huge down payment. Plus, the rental income from your tenants can offset your mortgage costs, and lenders may count this income when approving your loan.

Let’s break down exactly how buying a multi-unit property works.

 

What is a 2-to-4-unit property?

A 2-to-4-unit property, also known as a multi-family home, has two, three, or four separate living units within one building. Each unit has its own entrance, kitchen, and bathroom. A single homeowner owns the building.

In Chicago, multi-unit properties (two-, three-, and four-flats) make up roughly 23% of housing, offering ample opportunity for homebuyers aiming to reduce housing costs while building equity.

Sam is buying a 3-flat in Chicago’s Logan Square neighborhood.

He’ll live in one unit and rent out the other two.

His tenants’ rent will cover most of the mortgage, significantly reducing his living expenses.

 

What are my loan options for a 2- to 4-unit property?

You have two main financing options when buying a 2-to-4-unit property: FHA and conventional loans.  Both have pros and cons to consider.

 

FHA Loans:

FHA loans are backed by the Federal Housing Administration, offering a low down payment of just 3.5% and flexible credit requirements.

FHA interest rates are typically lower when purchasing a multi-unit property. However, FHA loans have higher mortgage insurance costs, both upfront and monthly, which can increase your overall loan expenses.

 

Conventional Loans:

Conventional loans are not government-backed and generally require a down payment of at least 5%.

While conventional loan interest rates may be slightly higher for multi-unit properties, they often come with lower overall loan costs, especially for borrowers with strong credit and finances, because mortgage insurance is less expensive and can be canceled once you reach 20% equity.

Selecting the best loan depends heavily on your financial situation and homeownership goals. Book a time to talk with a home loan expert at NewCastle Home Loans, and we’ll guide you to the best choice.

 

 

What is the minimum down payment for a 2-to-4-unit property?

The minimum down payment is:

• FHA Loan: 3.5%
• Conventional Loan: 5%

Down payment as a percentage of the  purchase price
Number of units	Conventional loan	FHA loan
2-units	5%	3.5%
3-units	5%	3.5%
4-units	5%	3.5%

 

 

Sam is buying a 3-flat for $840,000. Here are his down payment options based on the type of loan he uses to finance the purchase.

• FHA: $840,000 × 3.5% = $29,400
• Conventional: $840,000 × 5% = $42,000

 

If you're buying a multi-unit property as an investment and won’t live there, you’ll need a conventional loan and at least a 25% down payment. You can’t use an FHA loan to purchase an investment property.

 

• More about down payment requirements

 

 

What are the loan limits for a 2-to-4-unit property?

Loan limits vary by the property’s location and the number of units. For 2025 in the Chicago area:

 

Conventional Loan Limits

• 2-unit: $1,032,650
• 3-unit: $1,248,150
• 4-unit: $1,551,250

 

FHA Loan Limits (Chicago metro)

• 2-unit: $671,200
• 3-unit: $811,275
• 4-unit: $1,008,300

 

When purchasing a multi-unit property in Chicago, the type of mortgage you choose — conventional or FHA —  can significantly impact your purchasing power due to differing loan limits and down payment requirements.

 

Can I use rental income to qualify for my mortgage?

Yes. Lenders typically include rental income from your future tenants to help you qualify. They count 75% of the expected rent, subtracting 25% to allow for vacancies and expenses.

To determine the fair market rental income, the lender orders an appraisal report. An appraiser estimates the market rent for each unit by considering factors such as location, property condition, and comparable rental properties in the area.

Can first-time buyers use rental income to qualify?

Yes, first-time homebuyers can typically use rental income to qualify for a mortgage. Still, rules differ based on the loan type:

FHA Loan:

First-time homebuyers can always use rental income from the property they're buying to help qualify for the mortgage.

Conventional Loan:

First-time homebuyers must prove they've consistently paid rent or a mortgage over the past 12 months to include rental income from their new property in their qualifying income.

Acceptable documentation includes canceled rent checks, online banking transaction history, or bank statements showing rent payments.

Suppose you've lived rent-free and can't document housing payments. In that case, lenders won't allow you to count rental income toward qualifying for a conventional loan.

Will my interest rate be higher on a multi-unit property?

Your interest rate might be slightly higher on a multi-unit property when using a conventional loan. Still, FHA loan rates remain the same as single-family homes. 

Conventional lenders typically view multi-unit properties as slightly higher risk, resulting in a marginally higher interest rate. FHA loans don't differentiate rates based on property type.

Mortgage rates vary based on your credit score, down payment, and loan amount. View current conventional and FHA rates tailored to your situation, based on the information you enter.

Are there special FHA rules for properties with 3 or 4 units?

Yes. FHA loans for 3- and 4-unit properties require a Self-Sufficiency Test.

This test ensures your property's expected rental income can cover your total monthly mortgage payment, principal, interest, taxes, and insurance (PITI).

• FHA Self-Sufficiency Test

Additionally, FHA loans above $726,200 have higher monthly mortgage insurance premiums.

So, suppose you're buying a 3- or 4-unit property and your loan amount exceeds $726,200. In that case, you can expect higher monthly mortgage insurance costs, resulting in a higher overall monthly payment.

• FHA mortgage insurance

Do I need reserves when purchasing a 2- to 4-unit home?

Conventional loans typically require six months of documented liquid reserves when purchasing a multi-unit property. For FHA loans, the reserve requirements are lower:

• 2-unit properties require reserves equivalent to one month's housing payment (PITI) after closing.
• 3- and 4-unit properties require reserves equal to three months of PITI after closing.

Reserves are funds you have available after the mortgage closes. They are measured by how many monthly housing payments (principal, interest, taxes, and insurance—PITI) you could make with these funds. Acceptable forms of reserves include:

• Checking or savings accounts
• Investments in stocks, bonds, mutual funds, and certificates of deposit
• Vested amounts in retirement savings accounts (such as a 401(k))
• Cash value of a vested life insurance policy

Reserves ensure you have a financial cushion to cover mortgage payments if unexpected expenses or changes in your income occur.

Can a mortgage co-signer help me buy a 2-to-4-unit property?

Yes, you can add a mortgage co-signer to help you qualify for the mortgage.

However, FHA loans require a 25% down payment when buying a 2-to-4-unit home, and your co-signer isn't going to live in the property.

A mortgage co-signer, or non-occupant co-borrower, applies for a mortgage with you but does not live in the home.

Conventional Loans:

A non-occupying co-signer doesn't change the down payment requirement (still 5%).

FHA Loans:

Using a non-occupying co-signer increases the required down payment from 3.5% to 25%.

How do I start the homebuying process?

The first step is a verified pre-approval. You'll know your exact budget, feel confident shopping, and make stronger offers in competitive Chicago neighborhoods.

NewCastle Home Loans guides you through each step with clarity and confidence.

Additional sources for 2-to-4-unit properties

• Down payment, 2-to-4-unit properties, Fannie Mae
• Calculating rental income, Fannie Mae
• Calculating rental income, Freddie Mac
• Calculating rental income for FHA loans