Buying a duplex and living in one unit

Buying a two-to-four-unit property, living in one unit and renting out the others, is often called house hacking. Because you live in the property, you can usually use home loan programs instead of investment loans, which often means a smaller down payment.

Why owner-occupied 2 to 4 units are different

When you live in one unit as your primary residence, lenders treat the loan as a home loan. That typically allows smaller down payments and better terms than a loan for a pure investment property. You generally must move in within a set period after closing and live there for at least a year, so these loans are not for buyers who plan to rent every unit.

• FHA allows 2- to 4-unit homes you will occupy, with a down payment as low as 3.5% for eligible buyers. On 3- and 4-unit properties, FHA also requires the property's rent to cover enough of the payment to pass a self-sufficiency test.
• Conventional loans can also be used. The minimum down payment is often around 5% for a 2-unit property and higher for 3 or 4 units.
• VA loans can be used for 2- to 4-unit homes you will occupy, with no down payment for eligible borrowers.

Counting rent

Lenders may count some of the expected rent from the other units toward the income used for the loan. They typically use only a percentage of the rent, often around 75%, to allow for vacancy and expenses. The exact rules depend on the loan program. Expect to provide a lease or an appraiser's rent estimate.

Being a landlord

A duplex comes with landlord responsibilities. Plan for:

• Reserves: lenders often require several months of payments in savings, and you should keep a repair fund too.
• Leases, tenant screening and rules for security deposits and evictions in Florida.
• Maintenance, insurance for a multi-unit building and vacancies between tenants.

Is it right for you?

House hacking can lower your living costs and help you build equity, but you share a building with your tenants and take on risk. The rent versus buy calculator can help you compare your options. A loan officer can explain which programs fit the property you are looking at. Book a time to talk it through, with no obligation.