An FHA multifamily loan is a mortgage loan, insured by the Federal Housing Administration (FHA), that’s used to purchase a property containing five or more units. FHA multifamily loans are different from standard FHA mortgage loans, with varying qualifications and loan limits.
If you are thinking of using FHA financing to buy a multi-unit property, here’s what you need to know.
Check your home buying options. Start hereIn this article (Skip to...)
- What is an FHA multifamily loan?
- FHA multifamily loan qualifications
- FHA multifamily loan limits
- Pros and cons of using an FHA loan
- FHA multifamily loan FAQ
What is an FHA multifamily loan?
The U.S. Department of Housing and Urban Development (HUD) defines a “single family” dwelling as one with anywhere from one to four units. This is important to note because, with the ability to use traditional FHA financing, homebuyers can take advantage of the same benefits that come with financing a single unit. These benefits include:
- Low downpayment
- Potentially lower interest rates
- Higher debt ratio allowances
- Less stringent credit requirements
An FHA multifamily loan allows homebuyers and real estate investors to purchase a multifamily residence, categorized by the FHA as a property with five units or more. Properties comprising more than one unit, but less than four, such as a duplex, are deemed single-family housing and thus, ineligible for an FHA multifamily loan. To qualify for a multifamily owner-occupied loan, the property must have five or more units.
Multifamily loans can be further broken down depending on whether you choose to live on the property (owner-occupied) or not. Properties with five or more units may qualify for commercial loans designed for owner-occupied purposes.
FHA multifamily loan qualifications
Similar to other types of mortgages, your eligibility for an FHA multifamily loan hinges on factors such as your credit score, income, and debt-to-income ratio (DTI). There are added factors, however, when applying for property types with multiple units.
First, be prepared to provide information regarding the potential rental income of the property. The other characteristic when buying additional units is higher loan limits. These limits increase according to the number of units added to the property.
Check your home buying options. Start hereIn contrast to single-family home loans, which have borrowing limits determined by the number of units and occupancy plans, FHA multifamily loans do not have an upper borrowing limit.
To qualify for FHA multifamily loans, you must have a loan-to-value (LTV) ratio of at least 87% to 90%. This means you’ll need to make a down payment of between 10% and 13%, equating to $10,000 to $13,000 for every $100,000 borrowed.
Each unit within the property must include a complete kitchen and bathroom, and the entire property must have been either completed or undergone a major remodel within three years prior to submitting your application.
FHA multifamily loan limits 2025
Rising home prices have led to increased FHA loan limits for 2025. The maximum loan limits for FHA forward mortgages will rise in 3,138 counties. In 96 counties, FHA’s loan limits will remain unchanged.
- One-unit: $498,257 in low-cost areas and $1,149,825 in high-cost areas
- Two-unit: $637,950 in low-cost areas and $1,472,250 in high-cost areas
- Three-unit: $771,125 in low-cost areas and $1,779,525 in high-cost areas
- Four-unit: $958,350 in low-cost areas and $2,211,600 for high-cost areas.
Similar to conforming loans, there are special exception areas for Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
The FHA also has multifamily loan limits that fall “in-between” low and high-cost limits.
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Pros and cons
FHA loans can be great for purchasing a multifamily home with up to 4 units. As always, mortgage borrowers should consider both the pros and the cons.
Check your home buying options. Start herePros:
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Lower down payment requirement. FHA loans require a down payment of just 3.5%. You may be able to combine an FHA loan with down payment assistance, resulting in zero down payment.
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Easier to get qualified. FHA loans are known for having less stringent credit requirements and more flexible underwriting guidelines.
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Lower interest rates. Typically, especially when it comes to mortgage borrowers with lower credit scores, FHA loans have more competitive mortgage rates.
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Combine with a 203K loan. With an FHA multifamily loan, you can get a 203k renovation loan and wrap it into your mortgage loan, allowing you to make just one payment.
Cons:
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Tougher appraisals. FHA appraisals have tougher standards than conventional appraisals. This may deter some home sellers from accepting an FHA offer over a conventional offer.
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Mortgage insurance premium (MIP) requirement. All FHA loans require both upfront MIP, as well as annual MIP. These can mean higher long-term costs but there may be ways to eventually get rid of FHA MIP.
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Continued mortgage insurance. If you put down less than 10% of the home’s purchase price, an FHA loan requires you to carry mortgage insurance for the lifetime of the loan. Even if you put down 10%, you’ll be required to carry the insurance for 11 years. This mortgage insurance requirement may increase your overall cost compared to insurance premiums on other mortgages.
Why purchase a multifamily home using an FHA loan?
Purchasing a multifamily home with an FHA loan can be a great idea. Just a few of those reasons include:
- FHA loans are typically easier loans to qualify for.
- It can be a more affordable way to get into real estate investing.
- Owning a multifamily home could be a great way to generate passive income.
- An FHA multifamily loan has liberal loan limits, allowing you to buy a larger property.
The bottom line: FHA multifamily loan
Depending on your financial needs and goals, buying a multi-unit property with an FHA mortgage could be an ideal multifamily financing solution for you.
Have you been thinking about venturing into the world of real estate investing and considering different types of rental housing? Are you ready to take the plunge into property management and have your tenants help pay your mortgage, a multifamily home may be the perfect solution for you. Get started by speaking with a lender today!
FAQ
Time to make a move? Let us find the right mortgage for youThe Federal Housing Administration (FHA) defines multifamily housing as a property that has five units or more. You can choose to live in one unit and rent out the rest. That way, you have a place to live, earn a profit on the rental income and build equity at the same time.
Typically, FHA multifamily loans require a higher down payment. Other than that, they have similar requirements as other FHA loans: credit scores of 580 or above, two years of verifiable income, along with proof of down payment. You’ll also need an appraisal with a fair market rental value to help you qualify for the mortgage payment with the rental income.
There are three types of FHA multifamily loans. While each may share some of the same qualifications and loan terms, each has slightly different requirements. 1) FHA Multifamily Acquisition Loan 2) FHA Multifamily Construction & Rehab Loan for Rental/Cooperative Housing 3) FHA Multifamily Construction & Rehab Loan for Condominiums
A lender will check your credit, and evaluate your income and assets. Be prepared to submit items such as your W-2s, tax returns and 1099s. You will also need to provide statements from any bank and/or investment accounts you’ll be using to qualify.
Loan limits for FHA multifamily loans vary according to location and number of units. Generally, you can expect a range from $498,257 in low-cost areas to $2,211,600 in high-cost areas.
You can also use FHA loans to buy an investment or rental property under two important conditions. The first is that the property can have no more than four (4) rental units total. The second is that you need to occupy one of the units in the property as your primary residence.
Yes, as long as you meet the necessary qualifications for financing a FHA multifamily loan.
There are tax credits you may be able to use for multifamily loans. Multifamily tax credits can be complicated to navigate, however. Consult a tax professional to find out exactly what tax benefits you qualify for.
