How do I fund a rental property with an FHA or conventional loan?

An FHA loan can fund a rental only when you occupy one of the units in a two to four unit home, and it cannot close on a property you never plan to live in. FHA loans are designed for owner-occupants, and the multi-unit allowance is the exception that lets a buyer live in one unit while renting the others. It is a common way to start in real estate investing.

For a property you will not occupy, FHA is not available, and a conventional investment loan is the path. Understanding which loan fits which situation is the first step.

An FHA loan on a two to four unit property lets you live in one unit, rent the others, and use the rental income toward your qualification. The low down payment makes it an accessible entry into multifamily ownership. You must actually occupy one unit as your primary residence, and the property must meet FHA standards.

The rental income from the other units can count toward your income, but FHA applies its own rules for how much counts. Lenders familiar with FHA multifamily loans can show you how your specific situation is treated.

A conventional loan funds investment properties with a larger down payment and stronger credit expectations, and it works for properties you will not occupy. The down payment commonly runs higher than an owner-occupied purchase, and the rates are typically higher as well. The trade-off is flexibility: you can buy any investment property, with no occupancy requirement.

Conventional investment loans are the standard path for landlords expanding a portfolio. Compare lenders for the rate, the down payment, and the reserve requirements, since each affects the deal.

If you are willing to live in one unit, FHA is often the cheapest way to enter multifamily ownership; if you will not occupy the property, conventional investment financing is the route. The FHA path builds equity while you occupy and rent out the other units, a classic house-hacking start. The conventional path lets you buy a true investment without living there, at a higher cost of entry.

Whichever you choose, underwrite the property with the right financing terms, since the down payment and rate change the cash flow. Your lender lays out both options with real numbers.