Short answer: With FHA, HUD allows a 96.5% loan-to-value on a purchase for borrowers with a 580 or higher credit score, which is 3.5% down on a 1–4 unit home you live in. Fannie Mae allows 5% down on a 2–4 unit principal residence. Closing costs and reserves come on top.
Definition
House hacking is buying a 2–4 unit property, living in one unit and renting out the others, so you can use a homeowner loan with a smaller down payment while the rent offsets your housing cost.
By the numbers: The US median home value is $360,600 and the median 2-bedroom gross rent is $1,490/mo (Census ACS 2024).
What house hacking is
House hacking means buying a small multifamily property (2 to 4 units), living in one unit and renting out the rest. Because you live there, it counts as your principal residence, so you can use homeowner loan programs with much smaller down payments than an investment loan.
The goal for most first-timers isn't big cash flow. It's cutting your own housing cost while you learn to be a landlord.
The loan rules that make it work
FHA: HUD's Handbook 4000.1 allows a maximum loan-to-value of 96.5% on a purchase for borrowers with a credit score of 580 or higher, which is 3.5% down, on properties with one to four units. At least one borrower must move in within 60 days of closing and intend to live there for at least one year.
FHA mortgage insurance: under HUD Mortgagee Letter 2023-05, FHA charges an upfront premium of 1.75% of the base loan (usually rolled into the loan) and, for a 30-year loan above 95% LTV up to $726,200, an annual premium of 0.55% for the life of the loan.
Conventional: Fannie Mae's Eligibility Matrix allows up to 95% loan-to-value (5% down) on a 2–4 unit principal residence purchase.
Good to know: On a 3- or 4-unit FHA purchase, the property must pass a self-sufficiency test: its payment (PITI) can't exceed the appraiser's fair market rent for all units minus the greater of the appraiser's vacancy and maintenance estimate or 25%.
How to run the numbers
While you live there, the question is your net housing cost: the full payment minus the rent from the other unit, plus a reserve for that unit's vacancy and repairs.
Net housing cost = PITI + mortgage insurance − other units' rent + reservesThen compare it with what you pay to rent today, remembering that part of each payment pays down your loan. After you move out, score it as a normal rental with the full rent from every unit.
House hacking traps
Red flag: Counting the unit you live in as rent. Your unit earns nothing while you're in it, and FHA's low down payment means a big loan and mortgage insurance on top.
Expect the move-out numbers to be thin. With 3.5% down, almost the whole price is financed, so cash flow after you leave is often negative unless you bought well below market or rents rise. Run both scenarios before you buy.
Tip: Get an FHA Loan Estimate early. Rates, mortgage insurance and the loan limit for your county change the math.
Worked example
A duplex priced at the US median home value ($360,600, Census ACS 2024), each unit renting for the US median 2-bedroom gross rent ($1,490/mo, which includes utilities paid by the renter). FHA 3.5% down, 30 years at 7.40% (Freddie Mac average, October 15, 2026; FHA rates vary), $3,211/yr tax, $1,800/yr insurance (assumed). After move-out: 5% vacancy, 5% maintenance, 8% management. The calculator link leaves out FHA mortgage insurance. Example only.
| Loan incl. 1.75% upfront MIP | $354,069 |
| Principal & interest | $2,451 |
| Tax + insurance | $418 |
| FHA annual MIP (0.55%) | $159 |
| Full monthly payment | $3,029 |
| Rent from the other unit | −$1,490 |
| Reserve on rented unit (15%, assumed) | $224 |
Frequently asked questions
How much do you need to put down to house hack?
With FHA, HUD allows a 96.5% loan-to-value on a purchase for borrowers with a 580 or higher credit score, which is 3.5% down on a 1–4 unit home you live in. Fannie Mae allows 5% down on a 2–4 unit principal residence. Closing costs and reserves come on top.
Can you house hack with an FHA loan?
Yes. FHA insures 1–4 unit properties as long as at least one borrower moves in within 60 days of closing and intends to live there for at least one year. Three- and four-unit properties must also pass a rental self-sufficiency test.
Is house hacking worth it?
It depends on the price, rents and rate. In this example at US median prices and rents and a 7.40% rate, living in one unit costs about $1,762 a month, more than the $1,490 median 2-bedroom rent, though about $268 of the first payment pays down the loan. Cash flow after moving out is about −$585 a month. It works best when you buy below median prices or in markets where rents are high relative to prices.
Keep learning
Sources
Educational content, not financial advice. Loan programs and requirements change; confirm with a lender.