FHA Loan

What Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration that allows borrowers to purchase a home with as little as 3.5% down. While FHA loans are designed for owner-occupied primary residences, they have become one of the most powerful tools in the real estate investor's toolkit through a strategy called house hacking. FHA loans can be used on 1 to 4 unit properties as long as the borrower lives in one of the units, making them the lowest-cost entry point into rental property ownership.

House Hacking with FHA

House hacking with an FHA loan means purchasing a duplex, triplex, or fourplex, living in one unit, and renting the others. On a $400,000 fourplex, your FHA down payment is just $14,000 compared to $80,000 to $100,000 with a conventional investment loan. The rental income from the other three units can cover most or all of your mortgage payment, meaning you live for free or near-free while building equity and landlord experience. This is how many successful investors acquire their first property.

MIP: The Cost of Low Down Payment

FHA loans require Mortgage Insurance Premium, or MIP. There is an upfront MIP of 1.75% of the loan amount, typically rolled into the loan, plus an annual MIP of 0.55% to 1.05% paid monthly. On a $380,000 loan, the upfront MIP adds about $6,650 and the monthly MIP adds roughly $175 to $330 to your payment. For loans with less than 10% down, MIP lasts the entire loan term. This is a real cost, but when compared to the capital you did not have to put down, the trade-off often favors FHA for new investors.

The Occupancy Requirement

FHA loans require you to occupy the property as your primary residence within 60 days of closing and for a minimum of one year. This is a legal requirement, not a suggestion. Occupancy fraud is taken seriously and can result in loan acceleration, fines, and criminal charges. After the one-year occupancy period, you are free to move out and convert the property to a full rental while keeping the FHA loan in place. Many investors execute this strategy repeatedly, buying a new house hack each year.

FHA Loan Limits and Property Requirements

FHA loan limits vary by county and property type. In 2026, the standard limit for a single-family home is around $524,000, with higher limits in high-cost areas reaching over $1,100,000. Multifamily limits are higher. A fourplex in a standard area may qualify for an FHA loan up to approximately $1,000,000. The property must meet FHA minimum property standards, which means it needs to be in livable condition. Properties needing significant repair may require an FHA 203(k) rehabilitation loan instead.

Using FHA Strategically to Build a Portfolio

The FHA house hack is the best first move for most aspiring investors. Start with a duplex or fourplex using 3.5% down. Live there for one year while learning property management firsthand with minimal risk. After the occupancy period, move into your next house hack using another owner-occupied loan product such as conventional 5% down. Repeat this cycle. Within 3 to 4 years, you can own multiple multifamily properties with minimal capital invested. Each property builds equity, generates cash flow, and provides the experience and track record you need to scale into larger commercial deals.