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

Jim Quist Apr 15, 2023 9:30:00 AM
Multi family property mortgage, 2-4 unit home loan

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 help to pay your mortgage, and the lender may factor this in as income when you apply for the loan.

In Chicago, where 2-4 unit properties make up 26% of the rental market, homebuyers have a unique opportunity to collect passive income, build wealth, and benefit from tax breaks that aren't available when you buy a single-family home. 


What is a 2 to 4 unit property?

A multi-family, 2-4 unit property is a type of real estate that contains two to four separate living units within one building. The units are separated by walls and have separate entrances, kitchens, and bathrooms but may share common spaces like yards or driveways.

The properties are often referred to as duplexes, triplexes, or fourplexes. In Chicago, we call them 2, 3, or 4 flats. No matter what you call them, one person owns the property, and each unit's rent helps the owner pay the mortgage, tax, insurance, and other expenses.

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

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

Purchase price: Lenders calculate the minimum down payment as a percentage of the purchase price. The more you pay for the place, the more you need for the down payment.

  • For example, if the minimum down payment is 20%, you need half as much to buy a $250,000 property compared to one selling for $500,000.

Loan type: The down payment requirement for a 2-4 unit property varies depending on whether you use a conventional or FHA loan to buy it.

  • A conventional loan requires a minimum of 15% down payment for a 2-unit and 20% for a 2-4 unit property. So, for example, if you buy a 3-flat for $500,000, you need $100,000 down. 
  • On the other hand, if you use an FHA loan, you need 3.5% of the purchase price for the down payment. So for the same $500,000 3-flat, the down payment is only $17,500.

Down payment percent of purchase price
Number of units Conventional loan FHA loan
2-units 15% 3.5%
3-units 20% 3.5%
4-units 20% 3.5%


Occupancy: For a conventional loan, you need at least 25% for the down payment when buying a 2 to 4 unit investment property. 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. 

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.

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Why buy a 2-4 unit property? 

There’s no other potential investment for first-time homebuyers like a 2-4 unit property. It’s an affordable investment that can generate income, build wealth, and earn you tax breaks.

You don’t need much money upfront to buy a multi-family home. If you’re going to live in one of the units, you’ll need a down payment of just 3.5% of the purchase price. This means you could qualify for a mortgage to buy a multi-family home with the same cash you’ve saved for the down payment on a single-family home or condo: 


Multi-Unit Home

3.5% Minimum Down Payment

Purchase price


Down payment (3.5%)


Loan amount


To take advantage of the potentially low down payment, you’ll need to live in your multi-family home, establishing one of the units as your principal residence. Within 60 days of purchasing your multi-family property, you must move in and continuously reside there for at least one year. After a year, you can move outand potentially consider buying another multi-family home.

As the owner, you’ll choose the unit you’d like to live in, then rent the other unit(s) out to tenants. Collecting rent from your tenants for the second, third, and/or fourth units will generate income, helping you pay back your home loan.


If you buy a 3-unit, live in one unit, and rent out the other two for $1,600 a month, you'd generate $3,200 in gross rental income per month.  


More people are renting these days, and this higher demand means higher rental rates. Plus, mortgage interest rates are still low. Because you’ll have a low-interest rate on your loan, your monthly mortgage payments will be low, too. This combination of high rents and a low monthly mortgage cost creates the opportunity to generate a steady stream of income. 

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Suppose you aren’t planning to live in your multi-family property. In that case, your mortgage lender considers the home an investment property. You can still buy the home, but you’ll need more money for the down payment: at least 25%. That’s a big cost difference:


Multi-Unit Investment Property

25% Minimum Down Payment

Purchase price


Down payment (25%)


Loan amount



Whether you live in your multi-family home or rent it out entirely, a steady stream of rental income combined with property appreciation and tax breaks can help you build significant wealth. Of course, one multi-family home won't make you a tycoon. Still, landlords are about four times as wealthy as average Americans.

Your wealthseparate from your incomeis your money in the bank, along with your investments, properties, and assets, minus liabilities like your mortgages. A multi-family home all but promises appreciation, as it’s very likely to increase in value over time.

As your property increases in its value, you’ll continue using your rental income to pay down the mortgage loan. This is how your wealth grows over time.


Your $500,000 3-flat appreciates at a rate of 5% annually, and your wealth then grows from $500,000 to $525,000 in just one year. Also, because you paid $17,500 for the down payment, you'll have earned a 43% positive return based on the property’s $25,000 appreciation.


On top of the potential to earn income and build wealth, rental properties also come with significant tax breaks. Because renting comes with lots of associated costs, you can deduct some of your related expenses from the rental income you report on your tax return. For example, interest, insurance, depreciation, property taxes, repairs, utilities, and even lost income from vacancies can be deducted from your rental income, offsetting these costs.

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

Because you’ll collect rent from one or more units in your multi-family home, you can use this future rental income to increase your purchasing power.

Using this additional income from your tenants, you’ll be able to afford a higher monthly housing payment. This increase in what you can afford means that you can borrow more for your mortgage, allowing you to purchase a more valuable property. 

“Future rental income” refers to the money you expect to receive from a home you rent out rather than live in. We use the term in the mortgage biz to represent the estimated income a rented property will bring in. When we qualify you for a home loan, we use this number as part of our calculations.

You can use the rent from a multi-family home to help you qualify for the mortgage. Adjusting for maintenance costs and possible vacancies, the lender will add 75% of the rent to be collected to your monthly income. 


Let’s say that Ada earns $7,500 per month. She’s considering buying a 3-unit, with plans to live in one unit and collect rent from the other two. Based on similar units in her area, each will rent for $1,600, or $3,200 each month.

When we qualify Ada for her loan, we use 75% of the monthly rental income, subtracting 25% for vacancy losses, maintenance costs, and management expenses:

  • $3,200 x 75% = $2,400 

Then, we add that $2,400 in adjusted rental income to the $7,500 Ada makes from her job. That total, $9,900, is the income we use to qualify Ada for her mortgage.

Generally, your monthly housing payment should be about 31% of your monthly income. With $9,900 coming in each month, this means Ada can afford a monthly housing payment of $3,070:

  • $9,900 x 31% = $3,070

For comparison, if Ada were to purchase a condo, the most she could afford to spend each month would be $2,325. Without the rental income, the amount Ada can borrow decreases considerably. 

Because Ada is interested in a multi-family home, the future rental income increases her purchasing power, allowing her to borrow more with her mortgage.

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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 it easier for you to get approved for the loan. For example, buy a duplex, and the rental unit generates $1,000 per month. 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. 

For example, you must be paying rent or making a mortgage payment. If you live rent-free with a parent or sibling, the lender won't allow you to add the rent to your qualifying income.


Do you rent, own, or live rent-free? Can you use rental income?
Own or rent Yes
Living rent free No


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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 how much your down payment, closing costs, and monthly payments will be.

For borrowers, mortgage costs are often broken down into two broad categories: your monthly payment and your 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 each month to your lender as you repay your loan.

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

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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.


If you buy a 3-flat for $500,000, you need $17,500 for the down payment, which is 3.5% of the purchase price. Then, borrow $482,500 from a mortgage lender like 


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 2-5% of the purchase price. 


When you and your real estate agent negotiate your sales contract, ask the seller to pay some or all of your closing costs. While sellers may be willing to cover these closing costs, they cannot pay any part of the down payment. The seller cannot, however, pay any amount of the down payment. 


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.

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

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 is the same whether or not you add a co-signer to your mortgage application. For example, you need a 15% down payment to buy a 2-unit and a 20% down payment to buy a 3-to-4-unit property. 
  • 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%.

down payment multi unit cosigner

For example, if you buy a $500,000 2-to-4-unit property without a co-signer, the minimum down payment is $17,500, three and a half percent of the purchase price. Adding a co-signer increased the minimum down payment to $125,000, twenty-five percent of the purchase price. 

Additionally, FHA has specific self-sufficiency requirements for 3 and 4-unit properties. So, if you're thinking about 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?

Like any investment, buying a multi-family home has potential risks you'll want to 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, in exchange for the property's investment potential, be prepared to compromise. 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 take a hit during certain economic conditions, like a recession. Your wealth could shrink if the property value drops. And 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.  

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Jim Quist NewCastle Home Loans
President and Founder of NewCastle Home Loans. Jim has been in the mortgage business for 20+ years.

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