How house hacking math works
House hacking works when rent from the other units pays a large share of the mortgage, so your own housing cost falls below what you would pay to rent.
| Line | Amount |
|---|---|
| Principal and interest | $3,821 |
| Taxes and insurance | $800 |
| Mortgage insurance | $265 |
| Repairs and reserves | $400 |
| Less rent from two units after 5% vacancy | ($3,990) |
| Your net housing cost | $1,296 |
| Rent you would pay instead | $2,200 |
Why the down payment can be small
Because you live in the property, it is financed as a principal residence rather than an investment property, so the minimum down payment is a fraction of an investor's.
- FHA: FHA insures one- to four-unit homes that the borrower occupies. The minimum investment is 3.5% of the price with a credit score of 580 or more; scores from 500 to 579 are limited to 90% loan-to-value.[1]
- Conventional: Fannie Mae's eligibility matrix allows up to 95% loan-to-value on a 2–4 unit principal residence, against 75% for the same building bought as an investment.[3] With less than 20% down you will usually pay private mortgage insurance, which protects the lender, not you.[5]
FHA charges an upfront premium of 1.75% of the base loan, usually financed into the loan, plus an annual premium paid monthly. For terms over 15 years on base loans up to $726,200 the annual rate is 0.55% above 95% loan-to-value and 0.50% at or below it.[1][2] Closing costs come on top; the CFPB puts them at 2% to 5% of the price.[6]
| Same building, financed as… | Maximum LTV | Down payment on $600,000 |
|---|---|---|
| FHA, you live in one unit (score 580+) | 96.5% | $21,000 |
| Conventional, you live in one unit | 95% | $30,000 |
| Conventional investment property | 75% | $150,000 |
Using the rent to qualify
When you buy a 2–4 unit home to live in, a lender can count rent from the other units toward your income, at 75%. FHA uses 75% of the lesser of the appraiser's market rent or the lease and adds it to income; it may not be used to reduce the payment.[1] Fannie Mae multiplies gross monthly rent by 0.75 and subtracts the payment.[4] In the example, 75% of the rent is $3,150.
FHA adds two tests for three- and four-unit buildings:[1]
- Self-sufficiency: the full payment (PITI) may not exceed the market rent of all units, including yours, minus the greater of the appraiser's vacancy and maintenance estimate or 25%. The results show this as a ratio; 1.00× or more passes on the 25% basis. The example triplex scores 0.89×, so FHA would not insure it at this price and these rents.
- Reserves: three months of PITI left after closing.
If you move out
With FHA, at least one borrower must move in within 60 days of closing and intend to live there for at least a year.[1] After that you can rent your unit as well. The move-out figure shows the monthly cash flow with every unit rented at market rent: $224 in the example. At that point it is an ordinary rental; run it through the rental property calculator for cap rate and cash-on-cash. Rental income and expenses are reported on your tax return, and while you live in one unit, expenses are split between the rental units and your home.[7]
You are the landlord and a neighborA vacant unit or a large repair hits your own housing budget directly. Rental income may not cover the mortgage and other costs.[8] Keep a reserve, and test the numbers with a higher vacancy rate.
Compare the loan options on the investment property mortgage calculator, and see how the rents stack up with the rental cash flow calculator.
Frequently asked questions
What is house hacking?
Buying a small multi-unit property (or a home with a rentable unit), living in part of it and renting the rest, so the rent covers some or all of the mortgage.
How much down payment do I need to house hack a duplex?
As little as 3.5% with an FHA loan and a credit score of 580 or more, or 5% on a conventional loan for a 2–4 unit home you live in, compared with 25% for the same building bought as an investment.
Can rent from the other units help me qualify?
Yes. FHA and Fannie Mae both count 75% of the rent from the other units. FHA also requires 3–4 unit buildings to pass a self-sufficiency test.
How long do I have to live in a house hack with an FHA loan?
FHA requires at least one borrower to move in within 60 days of closing and intend to live there for at least one year.
Is house hacking worth it?
It is when your net housing cost is well below the rent you would otherwise pay and you are comfortable being an on-site landlord. The worksheet shows both numbers.
Sources
- Handbook 4000.1, FHA Single Family Housing Policy Handbook
- Mortgagee Letter 2023-05: Reduction of FHA Annual Mortgage Insurance Premium Rates
- Eligibility Matrix
- B3-3.8-02, Rental Income from the Subject Property (Selling Guide)
- What is private mortgage insurance?
- Figure out how much you want to spend (Owning a Home)
- Publication 527 (2025), Residential Rental Property
- Buying an investment property