FHA Multifamily Loans: Everything You Need to Know
Are you interested in purchasing a multifamily property? Despite what you might believe, FHA loans can be used to purchase multifamily properties if you meet certain requirements. In this article, we’ll cover everything you need to know about FHA multifamily loans, including the loan limits, qualification criteria, and rental requirements.
Yes, you can purchase some multifamily homes with an FHA loan. The Federal Housing Administration (FHA) only allows funding for single-family homes. However, the U.S. Department of Housing and Urban Development (HUD) classifies a single-family home as any dwelling with one to four units.
This means duplexes, triplexes, and fourplexes can qualify if you plan to reside in one of the units for at least one year. In addition, mixed-use properties, meaning part commercial and part residential, can also qualify for an FHA multifamily loan if the property is at least 51% residential.
Since additional units cost more, the U.S. Department of Housing and Urban Development sets separate loan limits based on the number of units. Here are the loan limits by property type for 2025.
| Number of Units | FHA Floor (Low-Cost Area) | FHA Ceiling (High-Cost Areas) |
|---|---|---|
| One Unit | $524,225 | $1,209,750 |
| Two Units | $671,200 | $1,548,975 |
| Three Units | $811,125 | $1,872,225 |
| Four Units | $1,008,300 | $2,326,875 |
The FHA floor applies when 115% of the median home price is less than the floor limit. Areas that exceed the floor are considered high cost. Your lender can help you determine which area your property is in.
Securing an FHA multifamily loan requires certain criteria to be met. Let’s review the main FHA multifamily loan requirements you may need to satisfy.
With any mortgage, you must prove you have sufficient income to cover the mortgage payment. Lenders determine this income by evaluating your tax returns, W-2s, and 1099s. Since a multifamily property is generally more expensive than a single-family home, your lender will also perform a special appraisal to determine the expected rental income from the additional units. This income is then added to your other income streams.
Multifamily FHA lenders will also evaluate your credit score. Borrowers need a median credit score of at least 580 to qualify for an FHA loan with a 3.5% down payment. The higher your credit score, the better your terms, including repayment period and interest rate. If your credit score is below 580, you may still qualify; however, you will need a larger down payment.
Lenders will also evaluate your debt-to-income (DTI) ratio, which measures your current debt payments to the income you generate. To secure an FHA multifamily loan, you must have a debt-to-income ratio of 43% or below. Additionally, your monthly mortgage payment (principal, interest, taxes, insurance, and HOA fees) compared to your gross monthly income must be below 31%.
Multifamily properties purchased using FHA multifamily loans must also satisfy an appraisal requirement. Lenders cannot loan you more than the property appraises for. FHA appraisals include special safety regulations, such as no lead paint or major safety hazards.
Renting out other units in your property is acceptable; however, you must reside in one of the units for at least one year after the purchase. Once the one-year period has passed, you can move and rent out your unit.
In addition to the above requirements, you must also meet other conditions to qualify for an FHA multifamily loan, including:
FHA loans require that the purchased property be the buyer’s primary residence. A primary residence is a dwelling unit you live in for most of the year. Additionally, you must reside in one of your FHA multifamily units for at least one year. After one year, you can rent out that unit and move into a different home.
The requirement for rental units depends on the number of units purchased and if rental income was added in the underwriting process. If you use future rental income to qualify for an FHA loan, you may need a signed 12-month lease before closing the property, but this requirement will differ by lender.
In addition, triplexes and quadplexes must meet minimum income requirements. After a 25% deduction, the monthly mortgage payment, including taxes and insurance, must be lower than the monthly income generated by all units.
It’s also important to note that FHA loans on multifamily properties do not allow short-term rentals. If you plan on converting the property to a short-term rental, you will need to refinance the property.
FHA loan rates change daily but are generally about 1.0% to 2.0% lower than the prime rate, which is currently 7.50%. Since a federal agency backs FHA loans, their interest rates tend to be lower than conventional loans. Rates can also differ from those of single-family homes depending on the location, income, and risk associated with the property.
We’ve already touched on most financing and loan costs for FHA multifamily loan limits. In this section, we’ll quickly recap the financing and loan costs you need to know.
If your credit score is 580 or higher, you’ll need at least a 3.5% down payment. For credit scores below 580, the FHA requires a down payment of at least 10%.
The maximum loan amount your property qualifies for depends on your area. If you are in a low-cost area, you must follow the floor loan limits, while high-cost areas can go up to the ceiling. Additionally, your loan amount must not exceed the property's appraised value.
Lenders will complete a special rental appraisal to determine the fair value of your rental property. However, most lenders will require a signed 12-month lease to use rental income in the qualification process. For risk-reduction purposes, lenders may also take only a percentage of your expected monthly rental income to use as extra income in the underwriting process.
There are a lot of advantages to using an FHA loan to purchase a multifamily property. One of the most significant is that you’ll be able to purchase the property with a lower down payment than you could with other loan types. Additionally, because the federal government backs FHA loans, they tend to have lower interest rates. However, using an FHA loan to purchase a multifamily property requires the owner to occupy one of the units for at least one year. You will also be required to pay mortgage insurance premiums (MIP).
If you want to sell your property while it still has an FHA loan, you can typically do so without any issues.
If you want to refinance an FHA multifamily loan in the future, you can do so through another FHA loan or a conventional loan. An FHA Streamline loan allows you to refinance with little paperwork and no appraisal. However, if you refinance to a conventional loan, you could avoid paying mortgage insurance premiums (MIP).
