HUD Multi-Family Mortgage Guidelines On FHA Home Loans


This BLOG On HUD Multi-Family Mortgage Guidelines On FHA Home Loans Was PUBLISHED On April 11th, 2019

HUD Multi-Family Mortgage Guidelines on 2 to 4 unit properties state home buyers can purchase multi-family units with FHA Loans with a 3.5% down payment.

  • HUD Multi-Family Mortgage Guidelines require less down payment requirements on FHA Loans than Conventional Loans
  • Fannie Mae/Freddie Mac require 15% down payment on owner-occupant 2 unit purchases and 20% down payment on 3 to 4 units
  • HUD Multi-Family Mortgage Guidelines allows 2 to 4 unit owner-occupant home buyers to purchase with 3.5% down payment and with at least a 580 credit score
  • 2 to 4 unit properties are becoming increasingly popular among buyers who plan in occupying one unit and renting the remaining units for rental income
  • It is an excellent way to invest in real estate. It is also easier to manage since the tenants are all in one location

In this blog, we will discuss HUD Multi-Family Mortgage Lending Requirements on 2 to 4 units.

Eligibility Requirements

Borrowers need to meet minimum FHA  Lending Guidelines:

  • 580 credit scores for 3.5% down payment FHA Loan
  • 2 year out of Chapter 7 Bankruptcy discharge date
  • 3 years out of foreclosure, deed in lieu of foreclosure, short-sale
  • Outstanding collections and charged off accounts do not have to paid off
  • Maximum front end debt to income ratio 46.9% and 56.9% back end to get an approve/eligible per automated underwriting system
  • Manual underwriting allowed
  • Borrowers in a current Chapter 13 Bankruptcy repayment plan can qualify with Trustee Approval and manual underwriting
  • No waiting period after Chapter 13 Bankruptcy discharge date
  • No landlord experience required
  • Reserves cannot be gifted: Needs to be borrowers own funds

Types Of Properties Eligible For HUD Multi-Family Mortgage

FHA only allow owner-occupant primary residence properties to be eligible.

  • Any one to four unit residentially zoned multi-family properties is eligible for HUD Multi-Family Mortgage Loans
  • Lenders consider two to four unit properties riskier than single-family homes
  • Therefore, mortgage rates on 2 to 4 units will be higher than single-family homes
  • There are no reserve requirements for one unit homes
  • There is one month of reserve requirement on two-unit homes
  • However, HUD requires three months of reserves for three to four unit properties
  • One month’s of reserves is one month of principal, interest, taxes, insurance (PITI)

Manual underwriting is allowed on multi-family FHA Loans. Manual Underwriting Guidelines apply.

Can I Use Potential Rental Income As Qualified Income?

Great news with buying a 2 to 4 unit multi-family owner-occupant property is that you can use the potential rental income on the non-occupying units as qualified income. The potential rental income is determined by the home appraisal. FHA allows 85% of the potential rental income to be used as qualifying income. This holds true for vacant units.  Proposed rental income may be used when verified by the underwriter.

With no history of rental income:

  • Fannie Mae form 1025 or Freddie Mac form 72  needs to be completed (Small Residential Income Property Appraisal Report) by the appraiser

Home buyers who are buying a 2 to 4 unit multi-family home and need a direct lender with no overlays, please contact us at Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays.

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