FHA Loans for Real Estate Investors: How to Start With Low Money Down

Looking to invest in real estate but short on capital? You don’t need 20% down to get started.

With an FHA loan, you can buy up to a 4-unit rental property with just 3.5% down—as long as you live in one of the units. This makes FHA financing one of the most accessible paths for new investors to get into the game, build equity, and generate rental income right away.

In this guide, we’ll explain how to use an FHA loan as a real estate investor, what’s allowed, what’s not, and how to turn a low-down-payment deal into your first step toward long-term wealth.

What Is an FHA Loan?

An FHA loan is a government-backed mortgage program insured by the Federal Housing Administration. It’s designed to help buyers—especially first-time homeowners—get into real estate with flexible credit and low down payment requirements.

Key FHA Loan Benefits:

• Just 3.5% down with a credit score of 580+
  
• Competitive interest rates
  
• Lower upfront costs
  
• Allows co-borrowers and gifted funds
  

But here’s what makes it exciting for investors:
You can use an FHA loan to buy a duplex, triplex, or fourplex—as long as you live in one of the units for at least 12 months.

FHA Loans and House Hacking: The Investor Loophole

If you live in one unit and rent out the others, you can:

• Cover your mortgage with rental income
  
• Live for free or nearly free
  
• Build equity while generating cash flow
  
• Use rental income to help qualify
  

This strategy is called house hacking, and FHA loans make it affordable even for new investors.

What Types of Properties Can You Buy?

With FHA loans, you can purchase:

• ✅ Single-family homes
  
• ✅ Duplexes (2 units)
  
• ✅ Triplexes (3 units)
  
• ✅ Fourplexes (4 units)
  
• ✅ Homes with legal ADUs (accessory dwelling units)
  

📌 You must live in one of the units as your primary residence for at least 12 months.

FHA Loan Requirements for Real Estate Investors

Check HUD’s loan limit lookup tool to see max loan limits in your area.

How to Use an FHA Loan to Start Investing

✅ Step 1: Find a 2–4 Unit Property

Look for multi-unit properties in areas with strong rental demand. FHA loans require the property to be in livable condition and pass an FHA appraisal.

✅ Step 2: Estimate Rents

Use a 1007 rent schedule or local comps to estimate what each unit could rent for. FHA lenders often allow up to 75% of projected rental income to count toward your qualification.

✅ Step 3: Live in One Unit

You’ll certify at closing that you intend to live in one of the units for at least a year. After that, you can move out and rent it fully.

✅ Step 4: Refinance Later

Once your property appreciates or rents stabilize, you can:

• Refinance into a DSCR loan (no income docs)
  
• Refinance into a conventional loan to remove mortgage insurance
  
• Keep the FHA loan and use savings to repeat the process
  

Pros and Cons of FHA Loans for Investors

✅ Pros:

• Start investing with just 3.5% down
  
• Use rental income to qualify
  
• Perfect for house hacking beginners
  
• Low rates and easier credit approval
  
• Build equity while living rent-free
  

❌ Cons:

• Must live in the property for 12 months
  
• Mortgage insurance required (upfront + monthly)
  
• Only one FHA loan at a time (usually)
  
• Property must meet FHA standards (no fixer-uppers)
  
• STRs (Airbnb) not allowed during the first year
  

FHA Loan House Hacking Example

Property: Triplex in Indianapolis
Price: $350,000
Down Payment (3.5%): $12,250
Estimated Rents (2 units): $1,500/month
FHA Monthly Payment: ~$2,000 (including taxes, insurance, and MI)

The rent from the other 2 units covers most or all of the monthly mortgage—allowing you to live for free in the third unit while building equity.

Can You Do FHA BRRRR or Flip?

Generally, no. FHA loans are not designed for short-term flips or BRRRR projects because of:

• The owner-occupancy rule
  
• Strict habitability standards (no heavy rehab)
  
• Limited use for distressed properties
  

But you can:

• Buy a livable duplex
  
• Do light improvements over time
  
• Refinance after 12+ months into a DSCR or conventional loan
  
• Rent out your former unit and repeat the strategy
  

Final Thoughts

FHA loans offer one of the lowest-barrier entry points for real estate investing—especially if you’re willing to live in the property and take a strategic, long-term approach.

With as little as 3.5% down, you can start building cash flow, tax benefits, and long-term equity without needing six figures in the bank.

Live in one. Rent the rest. Build wealth by design.