2-to-4-Unit Home | How to buy a multi-unit property

Multi-family, 2-to-4-unit homes are affordable and surprisingly easy to buy.

• You don't need perfect credit or a substantial down payment.
• Your future tenants will help pay your mortgage, and the lender may consider this income when you apply for the loan.

In Chicago, two-, three-, and four-flats comprise 26% of the rental market. This presents a unique opportunity to collect passive income, build wealth, and benefit from tax breaks unavailable when buying a single-family home. 

 

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

A multi-family, 2-to-4-unit property is a type of real estate that contains two, three, or four separate living units within one building. Walls separate the units, and each unit has separate entrances, kitchens, and bathrooms, but they may share common spaces like yards or driveways.

In Chicago, we call them two-, three-, or four-flats. No matter what you call them, one person owns the property, and the rent from each unit helps the owner pay the mortgage, taxes, insurance, and other expenses.

 

How much is the down payment for a 2-to-4-unit property?

The down payment for a multi-family, 2-to-4-unit property can vary depending on several factors, such as the purchase price, type of loan, and occupancy—whether or not you'll live there.

Purchase price:

Lenders calculate the down payment as a percentage of the purchase price.

Type of loan:

The minimum down payment percentage depends on the type of loan you use to finance your purchase. In this article, I'll cover two types of loans: conventional and FHA.

• Conventional loans require a down payment of at least 5% of the purchase price.
• FHA loans require a minimum 3.5% down payment.

For example, let's say you plan to buy a $500,000 3-flat. The minimum down payment would be $25,000 for a conventional loan and $17,500 for an FHA loan. 

• $500,000 Purchase price X 5% = $25,000 Down payment
• $500,000 Purchase price X 3.5% = $17,500 Down payment

Down payment—percent of purchase price
Number of units	Conventional loan	FHA loan
2-units	5%	3.5%
3-units	5%	3.5%
4-units	5%	3.5%

 

Occupancy:

Buying a 2-to-4-unit investment property requires at least a 25% down payment. You can't use an FHA loan to buy an investment property. FHA requires that you live there for at least a year after buying it. 

• Principal residence or investment property?

The down payment is one cost to consider when buying a multi-family property. Closing costs can be substantial. View current rates, payments, and closing costs so you know what to expect when buying a multi-family home.

• How to calculate LTV for a mortgage

 

 

How much can I borrow to buy a 2-to-4-unit property?

When buying a 2-to-4-unit property, the maximum amount you can borrow depends on the type of loan, the property's location, and the property's number of units. Conventional and FHA loans have specific limits that vary by county. 

Conventional Loan Limits

Here are the 2025 conventional loan limits for 2-to-4-unit properties: 

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

FHA Loan Limits

Here are the 2025 FHA loan limits for 2-to-4-unit properties:

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

Loan limits affect how much you can borrow without needing a jumbo loan. A jumbo loan usually has a higher rate and requires a larger down payment.

• Illinois mortgage loan limits for 2025

The following example illustrates how loan limits and down payment requirements affect your purchasing power when choosing between Conventional and FHA mortgages for a 2-unit property in Chicago.

 

 

 

Why buy a 2-to-4-unit property? 

A 2-to-4-unit property is a smart investment for first-time homebuyers. It's affordable, generates income, builds wealth, and offers tax benefits.

Low Upfront Costs

If you plan to live in one of the units, you can buy a multi-family home with a down payment as low as 3.5% using an FHA loan. You could use the savings you've set aside for a single-family home or condo and buy a multi-unit property instead. To qualify, you must move into the property within 60 days of purchase and live there for at least one year. After that, you can move out and buy another property.

Generate Rental Income

As the owner, you can live in one unit and rent out the others. The rental income helps cover your mortgage. For example, if you own a 3-unit property and rent out two units for $1,600 each, you'll generate $3,200 monthly. High rental demand and low mortgage interest rates make creating a steady income stream easier.

Investment Properties

If you don't live in the property, your lender will consider it an investment and require a larger down payment—typically at least 25%. While this is a higher upfront cost, rental income can still provide a good return on your investment.

Build Wealth Over Time

Multi-family homes typically increase in value. You can use rental income to pay the mortgage and building equity as your property appreciates. For example, a $500,000 property appreciating at 5% adds $25,000 to its value in one year. If your down payment was $17,500, that's a 43% return on your initial investment.

Tax Benefits

Rental properties come with tax breaks. You can deduct expenses like interest, insurance, property taxes, repairs, and even lost rental income from vacancies. These deductions offset costs and increase your property's profitability.

Owning a 2-to-4-unit property combines the benefits of homeownership with income generation and long-term wealth building, making it a powerful option for first-time buyers.

 

 

How can future rental income help me buy a 2-to-4-unit property? 

Future rental income can help you afford a more expensive property. When you rent out one or more units in a multi-family home, the extra income from your tenants can increase how much you qualify to borrow for your mortgage.

What Is Future Rental Income?

Future rental income is the money you expect to earn by renting out units you don't live in. Lenders use this estimated income to help calculate how much you can afford to borrow.

When applying for a loan, lenders consider 75% of the expected rent as part of your monthly income. This adjustment accounts for maintenance costs and potential vacancies, giving you a realistic boost in purchasing power.

 

• How future rental income can help you buy an investment property

 

 

Can I use the rental income from a 2-to-4 unit to get a mortgage?

When buying a 2-to-4-unit home, you can use the future rental income from the property to help you qualify for the mortgage. Still, the rules vary depending on the type of loan you use. 

FHA loan:

The lender will add up to 75% of the rent you expect to receive to your qualifying income, making getting approved for the loan easier. For example, buy a duplex, and the rental unit generates $1,000 monthly. As a result, you can add $750 to your monthly qualifying income.

Conventional loan: 

Likewise, the lender will add up to 75% of the rent you expect to receive to your qualifying income. However, there is one significant restriction: You must have a primary living expense, such as a mortgage or rent payment.

The lender will verify that you've made housing payments for at least one year before allowing you to use future rental income from the 2-to-4-unit property when qualifying for the mortgage. 

The following table shows whether you can add a portion of the future rental income from a 2-to-4-unit property to your qualifying income to help you get approved for a conventional loan.

 

Do you rent, own, or live rent-free?	Can you use future rental income for a conventional loan?
Own or rent	Yes
Living rent free	No

• How to calculate future rental income from a departing residence

 

How much will a multi-family property cost upfront?

Figuring out how much a multi-family property will cost you is a crucial first step in home buying. Buying a home requires more than just your monthly mortgage payment. Before seriously considering purchasing a multi-family home, you’ll need to determine the amount of your down payment, closing costs, and monthly payments.

For borrowers, mortgage costs are often divided into two broad categories: monthly payments and cash to close. Cash to close refers to the down payment and closing costs due when you close on your home. Your monthly payment is due to your lender each month as you repay your loan.

View current rates, payments, and closing costs to see how much a home will cost you. 

 

 

 

To buy a multi-family home, you’ll need 3.5% of the purchase price for the down payment. You’ll pay your down payment to the seller as you close on your new property, and the remaining amount of the purchase price is what you borrow from a lender.

 

 

You can’t borrow money to pay a down payment and take out a cash advance from a credit card. Generally, if you can’t prove where you got the money, the lender won’t count it toward the cash you’ll need to close on the home.  

In addition to the down payment, closing costs are the fees you pay when purchasing a home. While many different fees fall under this umbrella, you should expect the closing costs to range from 2% to 5% of the purchase price. 

• Loan Estimate Explainer        

 

 

You may need reserves when buying a property with 3 or 4 units. Reserves are funds you have left over after closing. Typically, lenders require three months of the housing payment in reserve for unexpected vacancies, repairs, or costs you incur as a new owner.

 

 

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

A mortgage co-signer can help you buy a multi-unit property. However, depending on the type of loan you use to buy a 2- to 4-unit property, you might need a larger down payment when you add a co-signer.

When you apply for a mortgage to buy a 2-to-4-unit property, the lender will consider your income, credit score, and other factors to determine your qualifications. If you don't meet the lender's requirements independently, having a co-signer can provide additional income and creditworthiness to help you qualify for the loan. 

A mortgage co-signer agrees to share the responsibility of repaying your mortgage loan but won't live in the property.

• Conventional loan down payment requirements are the same whether or not you add a co-signer to your mortgage application. For example, you need 5% for the down payment when buying a 2-to-4-unit property with or without a co-signer. 
• FHA loans are popular among first-time homebuyers because they offer lower down payment options. However, when you add a co-signer, the minimum down payment increases from 3.5% to 25% of the purchase price. 

Adding a mortgage co-signer to an FHA loan to buy a 2-to-4-unit property increases the minimum down payment from 3.5% to 25%.

For example, if you use an FHA loan to buy a $500,000, 2-to-4-unit property without a co-signer, the minimum down payment is $17,500, or 3.5% of the purchase price. A co-signer increases the minimum down payment to $125,000, or 25% of the purchase price. 

Additionally, FHA has specific self-sufficiency requirements for 3 and 4-unit properties. So, if you are buying a 3-4 unit home with an FHA loan, check out our FHA Self-Sufficiency Calculator to see if the property you're considering passes the test.  

 

What are the drawbacks of owning a multi-family home?

Buying a multi-family home has potential risks, which you should consider before signing a sales contract.

First, when you set out to buy a multi-family home, it could be trickier than searching for a single-family, townhome, or condominium. Finding an affordable multi-family home in good condition and a neighborhood you want to live in is more challenging. 

Next, be prepared to compromise in exchange for the property's investment potential. For example, you might have to commute longer to work or live through renovations.  

Then, finding renters, collecting rent payments, and handling repairs are drawbacks of renting out part of your home. In addition, managing tenants and running repairs could present unique challenges or cost more than expected. 

After that, real estate values can drop during certain economic conditions, like a recession. If the property value drops, your wealth could shrink. Depending on market conditions, reselling a multi-family home may be difficult. 

Talk to a mortgage expert at NewCastle Home Loans. Ask questions and get straight answers so you're ready to buy a multi-unit home.  

 

 

Mortgage rules 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