Buying property can help you build wealth, but saving up for a big down payment is hard. The Federal Housing Administration backs FHA loans, which have low down payment requirements and flexible credit rules. These mortgage loans are for a primary residence, not just an investment property, but you can still use smart paths to get started.
This is the main point. FHA loans are mostly for homes you live in, but you can also buy a multi-unit property and rent out the other units, or you can turn your home into a rental after you meet the occupancy rules. This guide shows you step-by-step how to start investing in real estate the right way, using low down payments, rental income, and simple strategies.
Important Points
- If you live in one unit for at least a year, FHA loans can help you buy up to four units.
- A 580 credit score only needs a 3.5% down payment, and in 2025, the most you can get for a four-unit home in Cook County, IL is $1,008,300.
- You must live on the property, but you may qualify if you can rent out extra units. If you break the rules, you could lose your home or go into default.
- In 2021, more than 716,000 first-time buyers used FHA loans because the debt-to-income limits and credit score requirements were more flexible.
- You can either rent the home out or refinance it into a regular loan with fewer FHA restrictions after living there for a year.
What is a loan from the FHA?
The Federal Housing Administration backs FHA loans, which are home loans. The loan comes from a private lender, and the insurance protects them if you stop paying. This setup is good for buyers who don’t have a lot of credit history or savings.
If your credit score is 580 or higher, you need to put down at least 3.5%. You need to put down at least 10% if your score is between 500 and 579. You also have to pay a mortgage insurance premium (MIP) every month, which adds to the cost of an FHA loan. Before closing, a property must meet safety and liveability standards. Also, the county FHA limits how much you can borrow. The most important thing is that you must live in the home that these loans are for.
Can you use FHA loans to buy investment properties?
You might think that FHA loans are only for people who want to buy and live in a single-family home. That is the main goal, but some paths let you invest while still following the rules. Think of it as house hacking with clear boundaries.
A look at the FHA’s rules for occupancy
The borrower must live in the property as their main home. You have 60 days after closing to move in. At least one borrower must meet the occupancy rule if there are more than one person on the loan. You must live there for at least a whole year.
These rules for owner-occupancy make sure that federal support goes to housing and not just speculation. If you live in the building, like in a multi-unit home, the rental income from the property usually doesn’t count. The property must pass an FHA appraisal and meet habitability standards. A full gut rehab that isn’t liveable won’t qualify until it’s safe and usable.
Exceptions for properties that are for sale
An FHA loan can help you buy a property with up to four units. You can live in one unit and rent out the others. If you have to move for work or your family grows, you can rent out your FHA-financed home after a year. You can also rent out rooms in the place you live.
If you meet the rules for credit, debt-to-income, and occupancy, rental income can help you get approved. If you already have an FHA loan, the FHA Streamline Refinance can help you do less paperwork later. These choices let you get into real estate investing while still following the program’s resident-first design.
How to Use an FHA Loan to Buy Investment Properties
If you plan ahead, you can use an FHA loan to start small and grow. The plan is to live in the property first and then collect rent the right way.
Buy a property with more than one unit and rent out the other units.
You can use an FHA loan to buy a multi-unit property with up to four units. You live in one and rent out the others. In Cook County, Illinois, the FHA limits for 2025 are $671,200 for two units, $811,275 for three units, and $1,008,300 for four units. That room can help you buy a bigger asset without having to put down a lot of money.
When you apply for a loan, lenders may use some of the rental income from the other units to help you qualify. This can help your debt-to-income ratio and make it easier to make your payments. Many people who are buying a home for the first time do this to pay off their mortgage and build their real estate portfolio faster.
Make your main home a rental property.
You can rent out your FHA home after living in it for at least a year if you need more space or have to move for work. A documented job transfer or a bigger family are common reasons. If you sell or refinance before converting the home, you won’t have to pay a prepayment penalty.
There are times when you can still get an FHA Streamline Refinance after you move out, but the rules are very strict. If you rent it out, that money could help you get the next one you want. A lot of investors start by renting out their first home and then buying a new one to live in.
Refinance to a standard loan to have more options’
After you have lived in the house for a year, switching to a conventional loan often gives you more freedom. To be able to refinance, you have to wait at least 210 days after the original FHA closing and make six payments on time. Some people use the FHA Streamline to get money quickly, and then they refinance into a regular loan for more flexibility in the long run.
Conventional financing gets rid of FHA occupancy limits on that property. Over time, it may also lower your private mortgage insurance (PMI) and give you better terms if your credit and equity improve. This step can make it easier to grow your rental portfolio.
What you need to know about FHA loans for investment properties
FHA loan requirements affect your choices, such as your credit score, down payment, loan-to-value limits, and occupancy. Knowing them saves time and money.
Minimum credit score and down payment
If your credit score is 580 or higher, you can put down only 3.5%. That comes to $13,125 on a $375,000 duplex. If your score is between 500 and 579, you need to put down 10%, which is $37,500 on that same price. These terms make it easier for people who are still building credit or savings to buy things.
Limits on the loan-to-value ratio
The loan-to-value ratio (LTV) tells you how much you borrow compared to the price of the home or its appraised value. FHA lets you borrow up to 96.5% of the value of your home if you put down 3.5%. Lenders may set stricter limits for investments, especially if the income is not clear or the file is complicated.
Many investors aim for an LTV of 80% or less over time so they can get rid of private mortgage insurance and get better terms. Don’t forget that there are also county limits. The limits for two units in Cook County, IL in 2025 are $671,200; for three units, $811,275; and for four units, $1,008,300. During underwriting, lenders will also look at your debt-to-income ratio.
Rules for owner-occupancy
You have to move in within 60 days of closing and stay there for at least a year. You can’t use FHA loans to buy a second home or a vacation home. They are meant for your main home.
If you live in one of the units, you can buy a multifamily property with up to four units. While you live there, you can rent rooms or separate units. If you break occupancy rules, you could lose your money and have serious legal problems. Carefully follow the rules.
Advantages of Getting an FHA Loan for Investment Properties
FHA financing makes it cheaper to get started and gives you time to learn. If you use it right, it can help you move up from your first home to something bigger.
Requirements for a low down payment
You can only put down 3.5% if your credit score is 580 or higher. That comes to $13,125 on a $375,000 duplex. For scores between 500 and 579, you need to put down 10%, which is still easier than most regular loans. Lower down payments leave more money available for repairs, reserves, or upgrades that raise rent and value.
Easy to get for first-time buyers
Many first-time homebuyers use FHA loans. New owners can deal with surprises and pay off their loans faster if they want to because the standards are flexible and there are no prepayment penalties. You can buy a single-family home or a multi-unit property that has been approved, which makes house hacking possible.
Guestmanagers.com takes care of booking, cleaning, and pricing for rental properties in Florida. A lot of owners use services like this to keep their buildings full and lower their stress.
Lower limits for credit scores
FHA’s lower score limits make things easier. You can put down 3.5% if you have a score of 580. A score of 500 to 579 can still work with 10% down. FHA loans can be a good place to start if you don’t have much credit history because they usually require higher scores.
FHA Loans for Investment Properties: What You Can’t Do and What You Can Do
Every tool has its own limits. FHA rules keep the program safe, which means you give up some freedom in exchange for lower down payments and easier access.
Strict rules about who can live in the property
You have to live in the house within 60 days of closing and stay there for at least a year. Only one person who signed the note needs to live there, but someone who took out the loan does. In the first year, you can rent out rooms or other units in a multi-unit, but not the whole property.
The lender can take action if you break the rules about occupancy. That could mean calling the loan due or starting the process of foreclosure. You need proof, but there are some exceptions for job changes or big changes in the home.
Limits on loans and standards for property
Every year, FHA sets limits for each county. Cook County, IL, will pay $671,200 for two units, $811,275 for three, and $1,008,300 for four in 2025. These limits are based on local prices and keep the program focused on affordable housing.
Homes must pass a property appraisal and meet standards for liveability. The building can’t have more than four units. Every unit needs to have safe systems, working heat, and a roof that doesn’t leak. You can’t get a severe fixer-upper until it’s fixed.
How to Get an FHA Loan for Investment Properties
The steps are the same as for any mortgage, but with FHA rules added on. Get started early, stay organized, and work with professionals who know this area.
Know how to apply
Select a mortgage broker or lender who has received approval from the FHA. Choose the type of loan you want, and then check that the property price is within FHA limits in your area. When you apply, tell them about your income, debts, and the property. If you are under contract, lenders will check your credit report and order an FHA appraisal.
Talk to your loan officer about how rental income from other units might be counted. Policies differ, and lenders will tell you what paperwork you need to use projected rent.
Get the papers you need ready
Get your last two years’ worth of tax returns, pay stubs, and W-2s. Include two months’ worth of bank statements and a complete list of all your monthly debts. Include any leases you have for other properties. Have your ID, Social Security number, and current address ready.
You might need a rent schedule and an estimate of the market rent for a multi-unit purchase. The property must meet FHA standards, so plan on making the repairs listed in the appraisal. The lender will also look at your debt-to-income ratio (DTI).
Find a lender that the FHA approves of
Only lenders approved by the FHA can offer these loans. They will talk about FHA loan limits, MIP costs, rules for occupancy, and how the loan-to-value ratio affects the terms. If it fits with your plan, a good loan officer will show you how to go from an FHA loan to a conventional refinance in the future.
Is an FHA loan a good fit for your investment plan?
What you want to do and when you want to do it will determine the answer. Think about how fast you want to grow and how long you can stay on-site.
Works with house hacking strategies
FHA loans are a good choice for house hacking. You can buy a duplex, triplex, or fourplex, live in one unit, and rent out the others. The extra money can cover a lot of your mortgage, which leaves you with more money for repairs and savings. In many markets, the loan limits for multi-unit properties are higher than those for single-family homes.
Long-term vs. short-term goals for investing
FHA rules say that you have to live in the home for a year, so short-term plays like quick flips or vacation rentals usually don’t work. Plans for the long term work much better. A lot of buyers live in one unit for a year, then refinance to a regular loan and buy more rental properties with fewer rules.
Summing It Up
To use an FHA loan to buy an investment property, you first have to live in the house and then find a way to make more money. Buy a property with more than one unit, rent out the other units, and then refinance into a regular loan when it makes sense. With a low down payment, flexible credit score rules, and rental income, you can start your real estate portfolio with less money up front. Check our rent calculator.
As always, rules can change, and the results depend on the lender and the market. Before making any financial decisions, talk to a licensed loan officer or housing counsellor. If managing rentals in Florida sounds like a lot of work, consult us at Guestmanagers.com. We focus on keeping your property full and running smoothly so you can relax, and make your rental a truly passive and profitable investment, even when you are in another state.
Questions and Answers
1. Would it be possible to buy an investment property with an FHA loan?
FHA loans are meant for buying a primary home, not for buying investment properties directly. But if you live in one unit as your main home, you can buy a multifamily property with up to four rental units.
2. What are the most important FHA loan requirements for buying a property with more than one unit?
You need to have a good credit score and a low down payment, which is usually 3.5% of the value of the property. The Federal Housing Administration also looks at your debt-to-income ratio and makes you pay mortgage insurance premiums.
3. How does having rental income affect my ability to get an FHA loan?
Rental income from other units in a multifamily property can help you qualify by raising your total income on paper. Lenders may use these numbers to help you meet the required loan-to-value ratio and debt-to-income limits.
4. Do FHA loans on rental properties need private mortgage insurance (PMI)?
Instead of PMI, FHA loans need their own type of coverage called mortgage insurance premium. This is true even if the loan is for a multi-unit primary residence that makes money through rent.
5. Is it possible to turn my FHA-backed home into an investment property later?
Yes, some owners use options like fha streamline refinance or switch to conventional loans if they want different terms or plan to move out while keeping the property as a rental. This is only possible after they have lived there long enough to meet occupancy requirements.
6. How much can I borrow with an FHA loan for real estate investing?
The Federal Housing Administration sets FHA loan limits based on the value of homes in a certain area. These limits apply to both single-family homes and larger buildings like duplexes or triplexes that are used as primary residences with extra rental units attached.
