2- to 4-Unit Loan Options: Owner-Occupied or Rental

Need a mortgage for a small income property? Here's best choices.

Duplex, Triplex and Fourplex Mortgage Loans

Most borrowers who choose to own a 2- to 4-unit residential property do so to obtain passive income to help cover the mortgage payment.

These small residential income properties are also known as a duplex, triplex or fourplex and are an excellent choice for the beginning real estate investor as well as the experienced investor.

What is a Duplex?

A duplex is two residential units on one parcel of land. A duplex can be one building with two separate units that each have their own legal address or two separate residential buildings on the same lot. A triplex or fourplex (quadruplex) follows the same logic with three or four separate units on one lot.

For new investors, you'll learn first-hand what your financing options are to comfortably retain a 2-4 unit multifamily property, generate cash flow, and later on possibly consider owning a larger income producing property like an apartment building with 5 or more units.

2- to -4-Unit Mortgage Features

  • - Zero to 5-percent down payments!
  • - Traditional income documentation
  • - No tax returns option
  • - No income & no job (details below)
  • - Minimum credit: 580 (for FHA), 640 for all others
  • - Minimum loan: $150,000
  • - Maximum amount: $5,000,000

An added benefit of owning a 2- to 4-unit income property is that you have that extra layer of security from the other rentals helping to pay your mortgage.

To put it simply, you are using other people's money to pay for your wealth growing asset. This technique is commonly referred to as "passive income" and is a vital aspect when it comes to successful real estate investing.

See the informaton below to compare the different financing options, interest rates, and cash flow scenarios when seeking to buy or refinance a California income property.

Two- to- Four Unit Loan Comparisons
30-year Fixed Loan Type Conventional FHA VA DSCR
The loan scenario above is for a borrower with a 700 credit scores buying an owner-occupied triplex with (2) 2-bdrms each renting for $2,200 and (1) 3-bedroom unit.
Conventional, FHA, and VA may allow the other two rental unit's income to help qualify. The DSCR program is stricly non-owner occupied.
The FHA loan balance includes the upfront MIP of 1.75% or $16,887 added to the base loan amount of $965,000.
The VA zero down loan includes a VA funding fee of 2.15% or $21,500 added to the balance.
The DSCR loan - qualifying is based solely on rental income, credit score & history. Tax returns, employment, and personal income are "not required".
Purchase Price: $1,000,000 $1,000,000 $1,000,000 $1,000,000
Minimum Down Payment: $50,000 $35,000 $0 $200,000
Loan amount: $950,000 $981,887 $1,021,500 $800,000
% Rent Income allowed: 75% 75% 75% 100%
Interest rates: Very Good Excellent Excellent Average
Income & Employment: 2 years 2 years 2 years None. No Documents

Why buy a small multifamily income property?

These multi-unit property mortgages are typically sought by new & seasoned investors.

Owners vary from self-employed or full-time employees who want to secure their future. Many investors say these reason(s):

  • - Grow your wealth
  • - Diversify & protect your assets
  • - Tenants pay your mortgage
  • - Loan-to-value leverage
  • - Inflation hegde with rising rents
  • - Property appreciation
front of 3-unit property

garages in back of a 4plex

Scenario: Buy a Fourplex with Low Income

Alex is determined to be successful in real estate investing. Alex has about $90,000 in stock market investments and money market savings and earns only $55k/year. Alex wants to divert one-half of that money into real estate and stop renting. He sought out the assistance of realtor/mortgage broker who helped his friend buy a foreclosure.

The mortgage broker informed him that he can buy the fourplex he had his eye on for around one million dollars with just a $35,000 down payment and use the other rental units to help him qualify. This is actually a true story from 10 years ago. Today the investor's property has huge appreciation and he now charges rent at 3x what they were when he bought it.

  • Purchase: $1,000,000
  • Property: 4-units; all 2 bdrm 1 baths
  • Loan: FHA mortgage
  • Down payment - 3.5-percent
  • No Junk fees!
  • $0 Application fee
  • $0 Loan processing

Additional Requirements to Consider

Minimum Conforming 2-4 unit down payments
Buying or refinancing a 2-unit property (duplex) with an conventional conforming mortgage follows the same rules or guidelines as if it were a single-family primary home. The stand-out difference is that you may be able to add 75-percent of the monthly rents from the other rentals to your income to qualify.

So, if your debt ratios are too high for a home, consider buying a duplex and use the rents to lower your debt-to-income ratios. Yes, the same applies for 3 or 4 unts as well. It's win win.

[RELATED: See the 2024 conforming loan limits for 2-4 units in California.]

Conforming 3 to 4-Unit Loan's New 2024 Condition
In order to bring just 5-percent down on a 3-4 unit using a conforming loan, you must occupy one of the units as your primary home according to federal law.

FHA Two-unit Financing Explained
Buying or refinancing a 2-unit property (duplex) with an FHA mortgage follows the same rules or guidelines as if it were a single-family property. A down payment of 3.5% of the sales price. The one beneficial difference is that you can add 75-percent of the monthly cash generated from the other rentals to your income to qualify. In effect, this will raise your overall income to help you meet the debt to income ratio condition for the specific property.

[RELATED: See the FHA 2024 loan limits for 2-4 units in California.]

FHA's 2- to 4-Unit Unique Condition
For FHA 2-4-unit mortgage loans, you are still required to use one of the units as your main residence, which means that it's a requirement to live in one of the four units.
Nevertheless, the huge benefit is that you are only required to bring in a 3 1/2 percent down payment of the purchase price and there is a six-month occupancy requirement.

Payment Reserves

Conventional 2-4 unit reserves
Freddie-Mac and Fannie-Mae mortgages may be utilized as a primary residence or investor-owned property to bring in rental income. Underwriters who analyze investment properties focus on the borrower having plenty of funds in a reserve account to deal with potential loss of income resulting from unoccupied units and non-payment of rent by tenants.
In summary, Freddie and Fannie loans require at the very least six months of PITI to be considered on a 2 to 4 unit property used as a rental property.

FHA reserves for a (duplex/triplex/fourplex)
When looking to acquire a 2 or 4 unit income property using an FHA loan it's mandatory to have 3-months of P.I.T.I in a liquid asset account. Unlike the earnest money deposit the funds for reserves cannot be in the form of a gift.
IMPORTANT: For FHA 2-4 unit financing, there is a self-sufficiency test the property must pass for qualifying purposes.

Refinancing a Duplex, Triplex or Fourplex

The same qualifying guidelines apply yet the maximum loan to value on refinances are typically lowered by 10-15. Rates are usually excellent under traditional income verification guidelines for borrowers with high credit scores & 20-percent equity.

With a conventional mortgage (Fannie or Freddie), there are higher down payment requirements not to debt to income limits and/or mortgage insurance add-ons that hurt your net income when it's a 2 to 4 unit property. Further requirements for 3 to 4 units using an FHA mortgage loan may apply but overall it is a better down payment option than a conventional financing on a 2 to 4 unit property. A self-sufficiency test comes into play for an FHA-financed triplex or fourplex. Basically, the market rental income from all units multiplied by a .25% vacancy factor must cover the new monthly mortgage payment, insurance, and taxes.


See answers to questions borrowers also ask about these multi-unit loans

What is the lowest credit score to qualify?

The minimum credit score required for approval is 580 for an FHA loan but you need to have a 10-percent down payment. The majority of traditional lenders want you to have a 640 or higher middle credit score. The lower your credit score the higher the down payment will be for almost every loan product.

Can I buy or refinance a duplex, triplex or fourplex without a job?

Yes. If the property has an FHA loan, you can use the FHA streamline refinance.
If the property has a VA loan, use the VA IRRRL streamline refinance.

A third option is to qualify by using only the subject property's rental income through the DSCR investor loan program
The guidelines are typically 20% down with a 680 credit score or have 25% equity for a refinance.
No Job. No Personal Income. No tax documents are disclosed or required. Additional underwriting conditions may apply for the property or borrower.

[RELATED: See the DSCR investor loan for 2-4 units.]

How many months of liquid reserves do I need?

The number of months generally ranges from 3- to 6-months depending on the program.

How long does an approval take?

A conditional pre-approval can be obtained within 48 hours depending on how much documentation you initially provide. FHA loans tend to take 3-4 business days while conventional loan 2-3 days, and DSCR loans (no personal income/no job) with all required documents such as copies of lease agreements, valid corporation or LLC agreements.

What documents do I need to apply with?

You will need copies of 2- to 3-months of your most recent bank statements, valid ID, copy of rent checks or mortgage history for the last 1-2 years, W2s last 2 years, tax returns, signed purchase contract if buying, and internal signed forms. The DSCR program which allows you to close in 8-14 days only requires a signed purchase contract, copy of leases (if rented), and your credit.


1. View the disclosure disclaimer regarding loan approval, loan product availability and qualifying for a loan. Not All borrowers will qualify.